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National Investors Guide 



by 

P. A. Watson 



Obtainable only by Lease through 

National Investors Service Bureau 

Incorporated 
Lansing, Michigan 



4$ 



Copyright 1921 

By 

National Investors Service 

Bureau 



OCT -4 W\ 



CI.A627085 

«V4 <■"■' ' / 



Preface 

This book, National Investors Guide, is an educa- 
tional issue offered in connection with our National 
Investors Service Bureau, and covers only what are 
termed and known as organizing securities. The con- 
tents place before the investor, information and advice, 
which, if carefully followed, in connection with the 
service of the National Investors Service Bureau, will 
be invaluable. 

The National Investors Guide or National Investors 
Service Bureau is not intended to discourage legitimate 
financing or the development of meritorious industries. 
Its intent and purpose is to educate its subscribers and 
fortify them against unscrupulous promoters and ques- 
tionable enterprises, which has cost the investing public, 
during and since the World War, an amount equal to 
if not more than our entire purchase of Liberty Bonds. 

National Investors Guide in connection with Na- 
tional Investors Service Bureau, when the principles 
are followed and the service used, will make the field 
of opportunities for questionable securities very limited 
and very unprofitable to unscrupulous promoters. 



This book No shall remain the property 

of the National Investors Service Bureau. It is leased to 



Name 

Town. 

(Street No.) 

(State) 

for his or her exclusive use. 

* 

Lessee may retain undisputed possession of this 
book so long as he or she shall remain a subscriber 
to the National Investors Service Bureau, and does not 
abuse the service. 

THIS BOOK NOT TO BE LOANED. 



INVESTORS GUIDE 

Published by the 

NATIONAL INVESTORS 
SERVICE BUREAU 

LANSING, MICH. 
Incorporated under the Laws of Michigan 



OFFICERS 

P. A. Watson President 

M. H. Kramer Vice-President 

C. W. Kramer Sec'y-Treasurer 



General Executive Offices, LANSING, MICH. 

Branch Offices to be operated in all Capitol 
Cities of the United States 




P. A. WATSON 

Author of National Investors Guide which covers his fourteen successful years as 
general promotor and stock salesman. 



Preliminary 

I want it understood that in giving my experience 
as a promoter and stock salesman that I have not be- 
come saturated with remorse for my wrong doing, 
accepted religion, and started out to reform the pro- 
moter and stock salesman. 

Nor do I want a subscriber to think that I have a 
grievance against those with whom I have been asso- 
ciated, and that I am taking this means to get sweet 
revenge. 

Nor do I want anyone to think that I am like the 
criminal who turns on his associates, gives what is 
termed States Evidence, after being promised leni- 
ency, for such is not the case. 

For the past five years the idea has been in my 
mind to start an Investor's Service Bureau, realizing all 
these years how helpless the average investor is when 
approached by a clever stock salesman, who is backed 
by a shrewd promoter. My experience has proved 
that the prospective investor is but clay in their hands 
in falling prey to the opportunities presented. Inves- 
tors include men of all classes, not excepting the 
shrewdest business and professional men. Of course, 
you understand that we only approach men whom we 
know desire to increase their estate and who are in 
position to invest. Consequently you will understand 
that they have been at least moderately successful in 
their line of business. 

My further reason for organizing an Investors Serv- 
ice Bureau is due to the fact that we know of no such 
service available in the world, where a prospective 
investor can apply for and obtain a report on an or- 
ganizing proposition before investing his money. 
There are mercantile agencies who compile reports on 
business institutions which are used as a basis for 
credit among business houses only, but the National 
Investors Service Bureau is the only service that fur- 
nishes reports during the process of organization. 

The principal reason for establishing the National 
Investors Service Bureau is because such a service is 
badly needed, and I believe that such a public service 
will save more money than any other service in the 
world. 



NATIONAL INVESTORS GUIDE 



My Fourteen Years As a Successful Promoter and 

Stock Salesman 

In 1907 I was connected with a cereal concern 
having a contract for eight southern states with head- 
quarters at Chattanooga, Tennessee. After I had been 
there a short time I met at my hotel, a stock salesman 
who was representing a local organizing concern. He 
would leave Chattanooga on Mondays and return on 
Fridays. We became very friendly, to the extent that 
he showed me his bank deposits which showed that 
his commissions amounted to from $900.00 to $1,- 
500.00 per week. Through his recommendation I 
obtained a position with his concern, and was allotted 
territory in Georgia. 

Up to this time I was not familiar with corpora- 
tions or their methods of financing so the business was 
all new to me. I had a talk with the president and 
other officers of the company, and they seemed very 
enthusiastic and appeared to be capable, clean cut 
business men. Their plan appealed to me as a very 
good one. 1 then studied their prospectus, made my- 
self familiar with details, got what we term "kit" to- 
gether, which consists of data on similar concerns, 
prospective profits, testimonial letters, etc, Then I 
was ready to go, and went to Western Georgia. 

We will call this company the G. S. A. Company, 
chartered under the laws of Arizona with an author- 
ized capital of $3,000,000, all common stock, par 
value $10.00 per sharei — offices Chattanooga, Tenn- 
essee. This charter was obtained about three years 
previous and the business of the company was to rep- 
resent as general agent in several states, a northern 
old line life insurance company. Their contract car- 
ried a first premium remuneration; also a renewal con- 
sideration. This brings us up to 1908, just after the 
Armstrong Investigation of our eastern life insurance 
companies. This investigation made public the enorm- 



10 NATIONAL INVESTORS GUIDE 

ous earnings of these companies. In the meantime the 
G. S. A. Company, as an agency company, for two 
successive years had paid to its stockholders 20 and 
25% dividends, but this on a small issue of its capital 
stock. This, of course, made the past record of the 
company look good. 

Their plan was now ready to promote and finance. 
It was understood that the G. S. A. Company would 
sell enough of their stock to finance the S. L. Insurance 
Company, of Memphis, with $500,000 capital and 
$500,000 surplus, the S. L. Insurance Company to re- 
main the property of the G. S. A. Company. Thus 
the stockholders would profit from two sources — the 
business of the already established G. S. A. Company,, 
and the profits to be derived from the S. L. Insurance 
Company. 

Their plan was to scatter this security all over the 
south, and get the co-operation of business and profes- 
sional men. We would first go to a local bank, induce 
some of the officers to subscribe, and in return would 
give the bank a contract which provided that all monies 
received for insurance premiums in that locality would 
be deposited in the local bank. This contract also 
provided that the bank would be privileged to loan 
the insurance company's money on real estate, farms, 
etc., for which they were to receive the usual broker- 
age. 

The contract also provided that the bank should 
furnish a list of influential men who were able to invest, 
assist in getting them to invest in the company, and if 
necessary handle their notes. During the sale of the 
stock, I succeeded in interesting every bank I called 
on to co-operate with me on this contract, excepting 
one in Mississippi. 

Our plea to the bankers and investors was that the 
south had only one life insurance company, and that 
southern policyholders were pouring their money into 
New York and Wall Street, which controlled the 
finance of this country. It could be shown that these 
eastern companies had been very profitable to their 
stockholders. 



NATIONAL INVESTORS GUIDE 



The G. S. A. Company plans were to keep insur- 
ance profits and assets at home, and make them avail- 
able for home development. As you can see, the 
theory was a good one, and would have accomplished 
a great good had the promoters or officers had any 
intentions of carrying out these plans. 

I was with the G. S. A. Company about nine 
months and only worked about four months. During 
this time I sold about $200,000 of G. S. A. Company 
stock and received 30 % commission. I did not know 
that 30% was an excessive commission and had every 
reason to believe that the company and the officers 
were acting in good faith. It gave me much pride to 
refer to my photo in the company's monthly magazine 
as ranking first or second in amount of stock sold dur- 
ing the month. 

I believe that it was in February, 1 909, while in 
Memphis, I picked up a morning paper which had 
printed in big head lines on the front page that the 
G. S. A. Company had gone into the hands of a re- 
ceiver. I began to try to confirm this report, ana 
found that all of the stock salesmen had been put wise 
and had left for parts unknown. I then called on the 
Vice-President, who was located in Memphis, and 
while he seemed to be in ignorance of the true situa- 
tion, advised me to leave town until matters were ad- 
justed. 

I had just sold $2,000 worth the day before, and it 
was hard for me to believe the report. I then went 
to the "to be" President of the S. L. Insurance Com- 
pany. He was much disturbed and felt as I did, but 
advised me to leave the state. I went to Reel Foot 
Lake, Tennessee, duck shooting, and from there to 
Chicago. As I remember it, the reports were that out 
of $3,000,000 authorized capital the promoters had 
sold their general agency contract to the G. S. A. 
Company for $1,500,000 of the stock. They then 
made a contract with themselves to sell the remaining 
treasury stock and were to receive 60% of the gross 
amount of sales. While they sold the treasury stock 
they also sold their private stock. You will have some 



12 NATIONAL INVESTORS GUIDE 

idea of the loss of 8,000 stockholders when I tell you 
that the security was sold at $20, $25 and $30 per 
share, and the par value was $10.00. 

This proposition was what is known as a stock 
jobbing proposition, and the officers never had any in- 
tentions of carrying out the original plans. They could 
not be prosecuted because they had guarded their ac- 
tions by keeping within the law and had kept a com- 
plete record for proof. All the receiver could find in 
assets belonging to the stockholders was $40,000 in 
cash. The S. L. Insurance Company never received 
a charter, never was licensed, and in consequence never 
sold or issued a policy. 

I learned of another agency company being 
financed in Florida, and was told that the stock w r as 
selling well and the proposition was clean. 

I went to Florida, and as far as I could learn 
everything was O. K. D. P., who had been conducting 
a general agency as an individual decided to incor- 
porate for $200,000. He had given himself $60,000 
of the stock for his agency contract. This company 
was known as A. C. G. A. Co. His pretense to the 
public to invest their money was the fact that he had 
been successful, and more capital would enable him 
to take on more insurance companies, which included 
several fire, life, casualty and one live stock insurance 
company. 

This security sold readily, and was soon sold out. 
A year later the capital was increased, and they had 
paid a 1 5 % script dividend. I returned to sell it and 
sold considerable. We salesmen, on the two issues, 
received 25%, the promoter 40%. Two months later 
a receiver had been appointed and no assets could be 
found. Most of the agency contracts had been can- 
celled. What assets that did remain after promotion 
and salaries had been paid were lost in bad loans. 
The president skipped to California and was in hiding 
from prosecution, although he was never bothered. 
It was rumored that he had made a hazardous loan of 



NATIONAL INVESTORS GUIDE 13 

a considerable sum to a movie theatre on account of 
his madness for vaudeville actresses, and his desire 
for free passes and access to all parts of the theatre. 
The failure of the company can be attributed to excess 
promotion expense and inefficient management. 

In the previous year prior to the increase in capital 
of the A. C. G. A. Company I learned that a machine 
had been invented and was being promoted at Louis- 
ville, Kentucky, for vending accident insurance policies. 

I went to Louisville, saw the machine in operation 
and found the company backed and officered by lead- 
ing business men and a banker of Louisville. They 
were endorsing the proposition in writing over their 
signatures. 

If I remember correctly, this company was known 
as the T. Insurance M. Company, incorporated under 
the laws of Arizona for $1,000,000 common stock, 
par value of $5. I sold $75,000 of this security and 
received 25% commission; most of this I sold in two 
towns in Kentucky. 

A contract had been made with a well known cas- 
ualty company to issue their policies through this ma- 
chine. The machine was to have been placed in pub- 
lic places, such as hotels, railway waiting rooms, etc. 
to accommodate the traveling public. 

The machine was very attractive in appearance and 
resembled high grade 5c weighing machines. 

The profits of this company were to accrue from 
these machines, acting as agent for the casualty com- 
pany. The T. Insurance M. Company was to look 
after the machines daily and remit the returns to the 
insurance company at stated intervals. 

The machine issued for 5c a $1,000 accident policy 
good for twenty-four hours, such as are issued by all 
standard companies. By dropping a nickel in the slot 
the machine would deliver the policy with coupon at- 
tached. The receiver would detach the coupon, write 
name and address plainly, then return the coupon to 
the machine. It remained there until taken out by the 



14 NATIONAL INVESTORS GUIDE 

attendant. The machine was provided with a scale 
and a clock and when the policy was delivered it bore 
the correct date and hour on both the policy and the 
stub. 

To sell the stock in the company we would go to 
a town, find some one responsible and financially able 
to invest in the company; and give him a contract on 
a percentage basis to care and look after a certain 
number of machines, with the understanding that he 
would assist in the sale of the stock. 

This man was easily found, as every city and ham- 
let was familiar with weighing and coin gambling ma- 
chines, and the returns they had made their operators. 

The climax came when I made a trip to Louisville 
to attend an aero meet. While in Louisville I met a 
friend stock salesman who was complaining that one of 
the officers had cheated him out of several good sales 
by selling to his prospects the officer's private stock 
at $2.50 per share. The purchaser believed that he 
was getting treasury stock, while at the same time we 
were obliged to get par $5 per share for treasury stock. 

I had about $50,000 worth of business lined up 
and my prospects wanted to see a machine. I took 
up the matter with the company, and they informed 
me that they had only one machine; and that they 
would have to send a mechanic to unpack and repack 
it, because they wished to take extremely good care 
of it. They also explained that they had at that time 
ten machines under construction that would soon be 
completed; then each stock salesman could have one. 

At the appointed day and time the mechanic and 
machine arrived. I had my prospects all ready and 
very much enthused. Instead of placing the machine 
on exhibition in the hotel lobby, which to me seemed 
the proper place in a town of 40,000, it was taken to 
my room. This was explained by telling me that they 
did not want every Tom, Dick and Harry operating 
the machine and wasting policies. 

My parties came in and viewed the machine, the 
outer case was removed, and coins handed the pros- 



NATIONAL INVESTORS GUIDE 15 

pects to operate it. I noticed that when the prospects 
were operating it, the mechanic would leisurely lay 
his hand on the machine and at a certain point the tip 
of his little finger would touch a dog. No one in the 
room but myself noticed it. All my prospects were 
more than satisfied; and told me they were ready to 
close up as soon as it was convenient for me to call. 

After they had gone I asked the mechanic why he 
had to touch the trip each operation. He explained by 
showing me that if he didn't the machine would run 
off all the policies in it before stopping. He further 
stated that they were trying to overcome this imperfec- 
tion, and seemed surprised that I was not aware of it. 

I did not go near my prospects, and they soon 
began to telephone me, as one man wanted $30,000 
and another $10,000. I telephoned them that I had 
been hurriedly called to Chicago on account of sick- 
ness, and left town. 

I learned later that all the officers were given their 
stock free and were selling it in conjunction with the 
company's treasury stock. The promoters were get- 
ting 50% of the gross sale of treasury stock, so this 
was simply a stock selling scheme, using an imperfect 
device for the purpose. Stock holders lost all. 

While in Chicago I learned of another insurance 
scale that was being financed on the same plan, and 
was assured that the machine was mechanically per- 
fect and foolproof. This company was known as the 
Nat. I. M. Co. They had enough machines so that 
they could give stock salesmen a machine to carry 
and use as a demonstrator. 

My first stop was an Illinois town where I made a 
"killing," as the expression is used where a stock sales- 
man makes big money. I jumped from this town to a 
good town in Arkansas. This town was entitled to a 
small allotment of $25,000 — 5,000 shares. The third 
day the allotment was sold to a prominent lawyer who 
was president of the local bank. 



16 NATIONAL INVESTORS GUIDE 

Before I had his remittance in the mail, I received 
a telegram from the promoter to accept no subscrip- 
tions, as the stock sale was closed. I returned to the 
lawyer, handed him his $25,000 and informed him 
that he was too late as the issue had been closed out. 
I don't suppose he will ever know what a narrow es- 
cape he had. 

I found while in this town that the machine was 
not perfect. The policies were of card board and 
when coin was placed in slot the machine would stamp 
same, then two delicate kickers would deliver the 
policy. It was impossible to secure card board made 
to an even exact thickness and consequently the ma- 
chine would become clogged and no policies would be 
delivered. 

searned afterwards that this company went the 
usual route. The machine was not perfect, and was 
used only for the purpose of selling stock. Stock 
holders lost all — promoters made money. 

My next proposition was a life insurance company 
with offices at Atlanta, Georgia, incorporated for 
$500,000 capital, and known as C. L. Company. The 
shares were all common par value $ 1 00. Like all 
insurance companies the stock is always sold above 
par, supposedly to create a surplus as required by law. 
It would surprise you to know that very few pur- 
chasers ask the par value of stock, and I do believe 
that a great many were under the impression that divi- 
dends were declared on the full amount paid for the 
stock. 

The promoter of this company, the C. L. Insur- 
ance Company, was just an ordinary insurance agent 
who succeeded in interesting some of the leading busi- 
ness and professional men of Atlanta to become 
officers of the company and accept free stock. The 
promoter obtained a splendid fiscal contract to sell the 
stock, and the general agency of the company after 
it was licensed to do business. I sold some of this 
security in Georgia, and attempted to operate in South 



NATIONAL INVESTORS GUIDE 17 



Carolina. I had the stage all set for a killing — had one 
bank pledged to take $50,000 when the Insurance 
Commissioner came out with a public statement that 
our cost of organizing was above 20% and served 
notice on prospective stock holders that the company 
v/ould never be licensed while he was the commis- 
sioner of South Carolina. 

I withdrew. Afterwards this company sneaked 
into another section of the state and sold over $200,- 
000. This company was finally licensed and oper- 
ated one year only, and sold out to another company. 
The stock holders received about 25c on the dollar, 
while the promoter insurance agent made about $100,- 
000 in financing the company. 

My next venture was the A. S. Life Insurance Com- 
pany of Augusta, Georgia, organized along the same 
lines as the Atlanta, Georgia, company. My first 
week's sales amounted to $25,000 in a South Caro- 
lina town. The notes were all good, and I had pre- 
viously arranged to discount them at a local bank, 
but the Insurance Commissioner of South Carolina 
again butted in and I could not discount the paper. 
The company then sent me into Georgia, but I did 
not meet with any success. 

I learned shortly afterwards that this company 
did not sell enough stock to qualify. The stock hold- 
ers were persuaded to let their money stand and organ- 
ize a trust company. The promoter absconded and 
the president was prosecuted. I believe he drew a 
short term of confinement. Stock holders lost all. 

My next was an Atlanta Company. This com- 
pany had just commenced operating and building a 
vending machine for dispensing bottled soft drinks, 
such as Coca Cola and sodas. The machine was built 
furnace drum shape. Inside there were four sections 
of revolving wheels laid down. The bottled soft 
drinks were placed between the spokes. Purchaser 
would drop a nickel in the Coca Cola section, turn a 



NATIONAL INVESTORS GUIDE 



crank and an ice cold bottle would slide out. A con- 
tainer was made underneath in which to return empty 
bottles. The sections were filled with bottles, the cen- 
ter filled with ice. 

I sold considerable of this stock in several towns 
by giving the town right in the sale of vending ma- 
chines. The last town I was in 1 had sold considerable 
stock and three machines were installed. 

One machine, placed on the side walk, took in 
$60.00 on Sunday. The next Sunday it took in 
$70.00 of which $50.00 was found to be metal slugs. 
It developed that as fast as machines were placed cus- 
tomers would find a way to beat them. 

Consequently the machine was not a success, and 
the stock holders lost their money, while the promoter 
and principal owner made money selling the treas- 
ury stock and his own private stock. 

My next was a salts company with general offices 
in Seattle, Washington, incorporated under the laws 
of Arizona. Parties in Seattle had acquired a lease on 
a lake in the State of Washington which produced a 
salts supposed to be equal to the famous imported 
Sprudel Salts of Carlsbad, Germany. A fiscal con- 
tract was given to parties in Milwaukee, Wisconsin. 
I worked Milwaukee and succeded in interesting some 
of the most influential business men there. My work 
incurred the jealousy of the fiscal agents, we dis- 
agreed and I resigned. I learned afterwards that the 
salts would deteriorate on a druggist's shelf. 

The fiscal agents, promoter and officers made good 
money selling treasury and private stock. The stock 
holders lost their money. 

* * * * * 

My next was a casualty company known as the 
N. A. Company of Atlanta, Georgia. I did not re- 
main on this long. 

The company had been trying for over a year to 
sell their stock. I was one of a party of sixty stock 



NATIONAL INVESTORS GUIDE 19 

salesmen that went to Atlanta in a special car from 
Chicago. My allotted territory was southern Florida 
with Tampa as headquarters. 

I succeeded in interesting several Tampa business 
men and found a prospective purchaser for a block of 
$20,000 who desired to be on the Board of Directors. 
I wired for the president to come and confirm the 
appointment so I could get settlement. He did not 
come at the appointed time. 

Two days later on my return to the hotel about 
9:00 in the evening, the proprietor informed me that 
one of my friends from Atlanta had arrived in a very 
dilapidated condition. They relieved him of his jew- 
elry, money and wet goods and had put another bed 
in my room for him. 

For several days I tried to get him in condition to 
call on our new director to be, and finally he slipped 
away from me and I found him calling on our pros- 
pective director, talking like a lunatic. After the in- 
terview, the prospect politely and in a gentlemanly 
way informed me that he did not care to be associated 
with such a charcater. 

I immediately tendered my resignation. I learned 
afterwards that they spent all the money they had 
received in the sale of stock in an effort to sell more. 
The company was never licensed, and stock holders 
lost all. 

My next was a $500,000 fire and casulty company 
of Jacksonville, Florida. 

Two ordinary country insurance agents from 
Georgia obtained $50.00 each as an advance from a 
promoter in Augusta, went to Jacksonville, succeeded 
in interesting several prominent business men, who 
all received free stock. 

The F. F. and C. Company was launched with 
these two men as officers, and also agency directors, 
one to have the fire department, the other the casualty 
department. 



20 NATIONAL INVESTORS GUIDE 

This company was financed in short order. Ex- 
cepting the president, all the officers and the promoter 
made money. This company was financed and or- 
ganized in ship shape. The agency directors had had 
no experience and the business was new to the local 
men; therefore, the company lasted only two years 
when it failed, and the affairs of the company were not 
yet settled in 1920. 

The president of a local bank, who was also an 
important city official, resigned to become president 
of this company. He is now safety deposit clerk in a 
local bank. The failure of this company was due to 
excessive cost of promotion, and inefficient manage- 
ment. Stock holders will receive about 1 0c on the 
dollar. 

My next was an oil company of Kansas City, Mo. 
5 1 % of the stock of this company was controlled by 
a Kansas City man. This company was known as 
A. T. R. Oil Company. 

Their plan was to organize local companies at 
various distributing points and sell them on a royalty 
basis, the privilege of using the company's patented 
process for refining oil. The local company was re- 
quired to have a paid in capital of $25,000, the parent 
company agreeing to install their process for $1 5,000. 
They were to receive a royalty of Yl c P er gallon on 
oil and gasoline. 

I saw one of these plants in operation in Kansas 
City, and they were supposed to have another in Col- 
orado and two in Louisiana. Their theory was to pro- 
rate crude oil and kerosene, 2 to 1 and coagulate 
same. With this process they could produce high test 
naptha better than any grade of gasoline on the mar- 
ket. The grease taken away by the process would 
make good cylinder and bearing oil. 

It was also contended that in case the producers 
would not sell them crude oil and kerosene, it could be 
bought locally at retail prices and still have a splendid 
profit. At that time crude oil was selling at 3c per 



NATIONAL INVESTORS GUIDE 21 

gallon and kerosene at 8c per gallon; gasoline was 
selling at 2 1 c per gallon. 

I took southern territory, and made my first at- 
tempt in Atlanta. I secured the endorsement and as- 
sistance of the local Chamber of Commerce, and had 
just about subscribed $25,000 when the Chamber of 
Commerce gave the good news to the newspapers. 
The next morning the Standard Oil Company reduced 
gasoline to hitherto unheard of low prices. This 
frightened the subscribers and it fell through. 

I made another attempt at Birmingham, Alabama, 
and Albany, Georgia, with the same results, conse- 
quently no one was stung by me. I have stated this 
case merely to show one of the many things that look 
good theoretically, but practically they are a failure. 

My next was a life insurance company of Gaines- 
ville, Florida. This company was organized and 
officered by four brothers and two relatives. 

The usual organization methods and practice were 
used in promoting this company. While there was 
considerable of the stock sold, it could not be financed 
sufficiently to secure a license to write insurance. 

The stock holders were afterwards transferred to 
the F. F. & C. Company of Jacksonville, Florida, on 
an equal share basis and finally lost out. 

My next was an issue in another life insurance 
company known as the L. A. Life Insurance Company 
of Jacksonville, Fla. The company was promoted in 
the usual manner by a local insurance agent who had 
no experience in operating an insurance company. 

He secured substantial local business men on his 
board of directors. As I remember it the authorized 
capital of the company was $250,000 and sold two 
for one. This company differed from other com- 
panies in the state only in that it was known as a 
negro life insurance company, and catered to colored 



22 NATIONAL INVESTORS GUIDE 

policy holders exclusively on the metropolitan plan 
or the weekly payment plan. 

This company made rapid strides the first year, 
but soon followed the route of the other companies 
and failed on account of inefficient management. 
Stock holders received nothing. 

My next was a resort and medicinal springs hotel 
company in southern Florida. This was a Florida cor- 
poration and was organized by two brothers. It was 
incorporated under the laws of Florida for $100,000 
and was known as the Z. Springs Company. 

The promoters had taken control by inflating val- 
ues of the real estate turned over to the company, 
which allowed them 5 1 % of the stock. Florida then 
had a blue sky department which gave the company 
a license to sell its security, and gave me a 25% com- 
mission contract, the company to furnish all advertis- 
ing. 

I sold considerable stock in nearby towns, and then 
I made a trip through Alabama, Tennessee and Illinois 
on their leads. I returned to Florida and insisted on 
selling the stock in their home town, which they dis- 
couraged. I then went to Ohio on their leads. 

This brings me up to August, 1914, when war 
was declared in Europe. Conditions were bad; there 
were prospects of a panic and everyone was blue, so 
I gave up my contract. 

If the hotel was ever completed and a dividend 
ever paid, I do not know about it, but I do know the 
company had too much promotion stock and the cost 
of financing was too high. 

My next was the N. M. Co., Grand Rapids, Mich- 
igan. The object of this concern was to place music 
vending pianos in public places. 

The fiscal agents for this company were then lo- 
cated in Chicago. The company had been paying 



NATIONAL INVESTORS GUIDE 23 



1 % per month, and an extra dividend at the end of 
each year. 

These agents induced me to go to West Virginia 
to call on the company's stock holders who had been 
in since the company started. I was given to under- 
stand that they would take more stock. However, 
on my arrival in West Virginia these stock holders in- 
formed me that they did not care to invest. I insisted 
on an explanation as to why they would not buy addi- 
tional stock when they were receiving 1 7 J/2 % on this 
security. 

They explained that they were well acquainted 
with the president who had formerly been very active 
in the Arnold Scheme which originated in St. Louis, 
Mo. This plan was similar to that of Ponzi's of Bos- 
ton, Mass., with the exception that Ponzi was supposed 
to have been dealing in foreign exchange while the 
Arnold Scheme was to pool investors money on horse 
races at the various tracks in the United States. 

These stock holders had invested in the Arnold 
Scheme when it first originated and received enormous 
dividends, although they lost their original investment 
when the plan collapsed. 

They said that they had invested in the N. M. 
Company of Grand Rapids because some of the same 
people who were connected with the Arnold Scheme 
were behind it. They went in on the ground floor, 
but expected it to collapse sooner or later. With this 
information I did not offer any more of the securities. 

In my judgment this was, and has always been, a 
promotion scheme. The company has sold stock con- 
tinuously for years, and I believe that the 1 % per 
month paid to the stock holders has been taken mostly 
from the surplus over par received from the sale of 
treasury stock. 






My next was a casket company of Chatham, On- 
tario, Canada. This was an American concern who 
had received American and Canadian patents on a 
heremetically sealed, pure copper vault. It was con- 



24 NATIONAL INVESTORS GUIDE 

tended that copper was the only material that would 
not perish underground, and that it was air and water 
tight. We will grant that their claims were correct. 

On my arrival in Chatham, I found that the Amer- 
ican concern had obtained a Canadian charter, and 
had given all the Canadian officers their stock free, 
thus turning the company over to them with the right 
to build the vault on a royalty basis. 

I found that most every one in that vicinity were 
wise to the organization, and in consequence would 
not invest. I then made a further investigation through 
one of the Canadian officers of the company and found 
that the American Company had misrepresented the 
cost of manufacturing the vault. The American con- 
cern claimed that the vault could be constructed at a 
price that would enable the Canadian concern to manu- 
facture and compete with the average burial plan at a 
splendid profit. 

Our investigation proved that this could not be 
done, and it could only be sold to the well-to-do. The 
company fell through. This was in 1915 and so far 
I have never heard of these patented vaults being sold. 
The only loser in this proposition was the American 
concern who had paid for the Canadian charter. 

My next was in Virginia. One of my friends who 
was a stock salesman was then at Roanoke, selling 
stock in the S. L. Insurance Company of Roanoke. He 
wrote me asking me to come to that city. 

On my arrival I found the affairs of the S. L. In- 
surance Company not going smoothly, so I declined 
to sell it. 

At that time the V. Match Company of Roanoke, 
Virginia, was seeking capital. They had secured 
enough money to build a well appointed concrete 
building, and had installed one machine. However, 
they had no working capital. 

As is the usual case, the company was over capital- 
ized. The patentee and the promoters held 5 1 % of 
the stock for patent rights, etc. 



THE NATIONAL INVESTORS GUIDE 25 

They claimed that this machine would revolution- 
ize the match making industry. The advantages claim- 
ed were that instead of being compelled to use white 
pine which was becoming scarce and high in price, the 
Roanoke machine would and did use bass wood, gum 
and other soft wood which was plentiful and cheap, 

The Roanoke machine instead of cutting the wood 
in block shape would cut it the length of a match in 
ribbon shape around the log. These ribbons or reels 
resembled a moving picture reel. These reels were 
then saturated in a chemical to prevent an after glow. 

They were then fed into the machine on an endless 
chain carrier, and came out a complete match into the 
package, ready for use. If I remember correctly it 
took the match two hours to complete its circuit 
through the machine. 

Theoretically this looks good, but the wood had to 
be carefully selected, and be free from knots. The 
heart of the log could not be used as it would not 
ribbon. It would crack, and break; therefore the 
waste in timber more than offset the cost of the white 
pine. 

Further, the machine would not stand the strain 
and was shut down half the time for repairs. The last 
I heard of this company was a letter I received in 
Pennsylvania from the president, requesting me to un- 
load some of his private stock in that state; I declined. 
Another failure at the expense of the stockholders. 

*T* *$• *** **• *F* 

My next was the C. I. Company of Roanoke. The 
ice and cold storage business at that time was con- 
trolled by one concern. They were very independent 
and would not drive their wagons on some streets. 
They charged 60c to 75c per hundred for ice, and of 
course were very much in disfavor. 

It was the same man who promoted the V. Match 
Company that conceived the C. I. Company of Roan- 
oke, and at a most opportune time. A charter was 
granted with two classes of preferred stock, "A" and 



26 NATIONAL INVESTORS GUIDE 

"B," and two classes of common stock, $90,000 "A" 
and $150,000 "B," class "B" only voting. 

The promoter assigned and issued the $150,000 
"B" to himself as free stock and a fiscal contract of 
25% for himself to sell the treasury stock. The pre- 
ferred was sold at par to draw 7%, payable semi- 
annually and accumulative. With each share of pre- 
ferred, J/2 share of the $90,000 class "A" common 
was given free. 

This stock sold readily, and in three months the 
company was manufacturing and retailing ice at 35c 
per hundred pounds. 

I told the president we could complete the stock 
sale in a hurry if he would pay the semi-annual pre- 
ferred dividend on time, and was amused when he 
said he thought he could pad the financial statement 
so that it would be O. K'd. by the board of directors. 
This he did, the dividend was paid and the security 
sold like hot cakes. 

While we were financing this company, the older 
or competitive company bought our stock indirectly 
and offered it to the investors for less than par. This 
was to discourage the sale. They also obtained a copy 
of our organization papers from the state commis- 
sioner, published them locally and called the public's 
attention to the amount of promotion allowed the pro- 
moters. This did not effect the sale of the stock. 

I never heard of the company paying any more 
than the first forced preferred dividend on the stock 
which was then outstanding. Public sentiment and the 
old co-operation gag sold this stock. I left before the 
cold storage warehouse had been completed. 

My next was the P. Life and A. Company of 
Pittsburgh, Pennsylvania. This company was the out- 
growth of a fraternal order. The appeal was made 
principally to the fraternal members to invest. 

The stock was sold in the A. G. Co. as a holding 
company to finance the P. L. A. Co. The capital of 



NATIONAL INVESTORS GUIDE 27 

this company was all sold in about four months. As 
I remember it $1,000,000. Up to this time the A. 
G. Co. had paid script dividends. Two years later they 
put on another issue, and displayed two more script 
or paper dividends. 

I was asked to join their forces, but declined, and 
learned later that their last issue did not sell. This 
was another stock jobbing proposition in which the 
promoter of the A. G. Co. was the only one to profit 
Stock holders paid for the music. 

My next was the N. A. Life Insurance Company of 
Chicago, the officers of which company were all clean 
cut and experienced insurance men. They had gained 
their experience with one of our largest eastern com- 
panies, and were known as this company's largest 
producers. 

When I offered the N. A. L. I. Company's stock 
they then had a paid in capital of approximately 
$700,000, and were selling $300,000 more. The 
company did not pay any dividends the first five years. 
However, the last three years this company was a go- 
ing, growing concern and did pay 10%, 12 Yl% and 
15% on a par value of $50.00. Despite this fact, it 
was the hardest security I ever have sold. I carried 
a splendid financial statement from the company which 
was the first and only one I ever had in selling stock. 

While the par value of the stock was $50.00, it 
had a book value of $207.00, and was sold at the book 
value price. You probably wonder why this was not 
so readily sold, the reason is plain. The company 
had been operating eight years, and the cards had 
to be placed on the table. The past record did not 
show enormous dividends that are usually expected 
by the average stock buyer. The stock salesman could 
not elaborate nor magnify the future as can be done 
with an organizing company. The company was 
judged by its past record, rather than by its future. 
It was impossible to explain that it had cost the N. A. 
L. I. Company $1,000,000 in eight years time to 



28 NATIONAL INVESTORS GUIDE 

build up a selling organization to the point where it 
could be depended upon. 

To show you the difference, I went to another 
company that had just obtained its charter and no 
stock had been sold. They didn't even have office 
fixtures. The par value of this stock was $100.00 and 
it sold like hot cakes at $200.00 per share. It had 
sufficient romance to enable the salesman to elaborate- 
ly paint a picture of the future profits to accrue, and 
the local benefits to be derived therefrom. 

My next was a company known as the A. B. & C. 
Co., with an authorized capital of $500,000 and a 
surplus of $500,000 to be created, par value $100 
per share. The first issue sold at $150, the second 
at $200 and the third at $250 per share. 

The president and promoter of the company had 
been formerly connected with an insurance agency in 
Oklahoma. The remainder of the officers were local 
business and professional men of Northwestern Iowa. 

In about three months, I sold approximately 
$150,000 of this stock. I met the vice-president by 
chance in Jacksonville, Florida, in January, 1 920 and 
he informed me that they had never paid a dividend. 
I learned from the Insurance Department of Missouri 
in 1921 that thejr had failed in February of this year. 

This failure can be attributed to lack of experience 
and inefficient management. 

My next was a company in Detroit, Michigan, 
known as the G. C. and S. Co. They had been tr3» r - 
ing for about two years to finance themselves, and had 
only about $11,000 in the treasury in November, 
1916. Their authorized capital was $250,000 with a 
surplus of $250,000 to be created during the stock 
sale. This issue was sold out by May, 1917. 

The capital was then increased to $500,000 and 
a surplus of $500,000. The license to sell it was ob- 



NATIONAL INVESTORS GUIDE 29 



tained September, 1917, and the financing was com- 
pleted in the summer of 1918. 1 sold about $125,- 
000 of this company's stock. 

In July, 1921, I was informed by one of the stock 
holders that no dividends had been paid. The presi- 
dent of this company is a well known man with a na- 
tional reputation, and in my judgment is a capable 
manager. The other officers are prominent Detroit 
and Michigan business men. But this company must 
be allowed the time necessary to build up a selling 
organization before the stock holders can expect to 
receive any dividends from their investment. At this 
writing August, 1921, I am not familiar with the pres- 
ent rating of the company. I do know that some 
stock holders invested in this company in 1915 or 
1916, and have never received any dividends. $55.00 
per share is now being offered for this stock. 

My next was an electric storage battery company 
of Greenville, Michigan, known as the A. E. S. B. 
Company. This company was originated by a for- 
eigner who supposedly had developed a superior for- 
mula for making electric storage battery plates, He 
was made president and given a small block of stock 
for his formula. The Chamber of Commerce gave the 
company a bonus, and an additional $40,000 was 
raised to finance the company. The company finally 
became financially embarrassed on account of poor 
management and the fact that the "formula" would 
not stand the test. 

Application was made and permission received to 
sell $40,000 more stock. The fiscal contract was of- 
fered to a Grand Rapids man and myself, which we 
accepted only after we had exacted a promise from a 
well known business man to become general manager; 
also a promise that the then president would be re- 
moved. These plans were carried out at the next 
meeting of the stock holders. 

A new chemist was secured who produced a splen- 
did battery plate, but the new management was han- 
dicapped in many ways. While most all the increased 



30 NATIONAL INVESTORS GUIDE 

capital was sold, the old management had caused the 
credit of the company to become impaired, and the 
president had created what we call "Bolshevism" 
among the factory employees. On account of cer- 
tain local interests who desired to get control of the 
company, and other local prejudice, the increased 
capital was hard to sell. 

My last report on this company was to the effect 
that they were making a good product, for which 
there was an excellent demand. They were, however, 
still seriously handicapped for lack of sufficient capital. 
This was in 1920, and I have not heard anything since 
then. 

Some stockholders have had their money in this 
company since 1916 and 1917, but I have never 
heard of any dividends ever being paid. 

My next was a cement company of Petoskey, 
Michigan, known as P. P. C. Company. Their au- 
thorized capitalization was $1,500,000, all common 
stock, par value $10.00 per share. 

This company first acquired a certain tract of phos- 
phate lands situated directly on Little Traverse Bay. 
They also acquired a company who owned a shale 
bed about thirty miles south of Petoskey, and a small 
tract of phosphate lands adjoining the company's 
property on Little Traverse Bay. 

These two companies formed the nucleus for the 
P. P. C. Company and in my judgment the stock ob- 
tained by the officers for this property was far in ex- 
cess of its real value. The remaining treasury stock 
was then offered to the public in 1916. 

Very little progress was made until 1 joined the 
company in the fall of 1918, in the lower peninsula 
of Michigan. While there had been some stock sold 
at par, at this time the stock was selling at $1 1.00 per 
share, and a small dividend paid to stockholders of 
record in January, 1918. 



NATIONAL INVESTORS GUIDE 31 

I gave up the sale of this stock December 1 , 1918, 
to finance a company in Greenville, but returned to 
the P. P. C. Company in December, 1919, and took 
a fiscal contract for the upper peninsula of Michigan. 
The stock at this time was selling at $12.00 per share. 

The stock was advanced at stated intervals during 
the year $1.00 per share until December, 1919, the 
stock was selling for $20.00 per share. I fought these 
advances because I felt they were arbitrary and ficti- 
tious, and in my judgment there was no legitimate 
basis for such increases. 

Work was started on a loading dock November, 
1919. The construction of the cement plant was 
not commenced until practically all the stock was sold. 
I understand that the company did not complete the 
cement plant or manufacture any cement until 1921. 

I do know this, that some of the stockholders have 
had their money in this company since 1917, and oth- 
ers paid $20.00 per share in 1919. Under successful 
management this company will have to pay unusual 
dividends to equal the legal rate of interest on $20.00 
shares for the time it has been invested. 

While in Detroit in July, 1921, I was advised that 
this stock was being quoted at $13.00 and $14.00 
per share. The greater portion of the capital was 
raised after it had been increased $1 4.00 to $20.00 per 
share. This shows that the public who bought this 
stock in 1917 and 1918 at par, $10.00, would now 
have a profit of about 1 0% on their investment if they 
were to sell. Those who bought at $20.00 per share 
would realize a loss equal to 30%, and those who 
bought at $13.00 and $14.00 per share, no profit or 
loss, outside of the use of their money for a period of 
over two years. If this money were in a savings bank 
the investor would receive interest at the rate of 3Yi 
or 4%. 

I have just learned this company paid a 3% divi- 
dend July 1, 1921. This, you understand, was paid 
on par, $10.00 per share. Those who invested at 



32 NATIONAL INVESTORS GUIDE 

$20.00 per share in 1919 have received $3.00 per 

share for the use of their money two years, which is 

equal to 1 Vi°/o. 

* * * * * 

In December, 1919, I went home to Florida with 
the determination of resting until May, 1920, but, like 
a good many well-meant resolutions, was made to be 
broken. In January, 1 920, I noticed in the Jacksonville 
newspapers a new motor power, advertised as a crank- 
less engine, which would revolutionize the motive 
power of the world. They were soliciting subscriptions 
for capital stock. 

My curiosity got the best of me, and I sauntered 
around to see the engine on display. While I was in- 
specting it I was introduced to supposedly leading me- 
chanical engineers from different parts of the country, 
who pronounced the model correct in theory, principle 
and practical, they were all very enthusiastic. 

Noticing the crude way in which they were at- 
tempting to sell stock, and believing that there was an 
opportunity to make some money financing the com- 
pany, I approached the president relative to taking the 
fiscal contract. I had heard and known of him for ten 
years, as a prominent business man and sole owner of 
two large enterprises in and near Jacksonville. I took 
it for granted that he was a good clean man and 
therefore did not inquire into his business methods. 

I accepted the fiscal contract and telegraphed one 
of my associates in Grand Rapids, Michigan, to come 
and look it over and join my organization, which 
he did. 

The company was operating under a declaration 
of trust which was n^w to me. I had not come ki 
contact with this method of organizing before, ex- 
cepting that I had heard of some larger companies 
operating along these lines. My partner and I closed 
a contract to sell one million of the treasury stock on 
a commission basis of 25%. We were to furnish all 
publicity, printed matter and defray all expenses in 



NATIONAL INVESTORS GUIDE 33 

selling the certificates. We were to deliver to the 
company 75c on every dollar received in cash and 
note settlements. 

For convenience, we, as fiscal agents, rented and 
furnished a suitable office, giving the company free 
rent. My associate had to return to Michigan to 
clean up some other business, so I commenced placing 
my salesmen and putting the house in order. 

The certificate sale did not progress as fast as I 
had anticipated, and my salesmen began to com- 
plain. This caused me to nose around among the 
banks and business men, and I found the reputation 
of the president for fair dealing very questionable. 

This aroused me to insist on seeing the declara- 
tion of trust. I read it over carefully and became 
thoroughly convinced that the company could not be 
financed under its terms, and the reputation of the 
president. I called the president into conference, ex- 
plained to him the impossibility of financing the com- 
pany in such a manner, and that we would cancel 
our fiscal contract unless he would agree to reorgan- 
ize and incorporate under the laws of Florida. Also, 
he was to withdraw as president, but was to be allowed 
to remain on the board of directors. He consented 
verbally to these conditions in the presence of wit- 
nesses. ' - -> . - : 

The following were my findings in the declaration 
of trust: The authorized capitalization was $2,500,- 
000. The par value of the certificates of shares was 
$ 1 0, non-voting. All elective power was invested in 
the board of six trustees, which consisted of the presi- 
dent, his son, daughter, son-in-law, patentee and a 
former protege. This protege had paid $500 for 
$2,500 worth of certificates, the natentee received 
$200,000 in certificates of shares as hfs share, and the 
other trustees had 1 00 shares each, with the excep- 
tion of the president, who held $650,000, or a total 
of $855,500 held by the trustees, of which $850,000 
was given for what was supposed to be basic patents 
on the engine. 



34 NATIONAL INVESTORS GUIDE 

The president had also sold to the company for 
$32,000 sixteen lots in an addition to Jacksonville 
which he was promoting, and received an additional 
$32,000 in certificates. When I went over this prop- 
erty, which was on the banks of a river, the water was 
up to the running board of my automobile. This 
property was located five miles from transportation, 
and was the proposed site for the factory. 

We jogged along selling certificates under his 
promise to reorganize, until I fell ill, and then we had 
to force the issue. My partner had then returned 
from Michigan, so under threats of exposure we finally 
succeeded in getting his signature to an agreement to 
reorganize under the laws of Florida. 

The books were then audited. When the transfer 
was being made we found that the former president 
had filed with the Blue Sky Department at Tallahassee 
a substitute to our fiscal contract which called for 35%. 
As a result, he had been pulling down for his own 
personal profit 10% on every sale we had made. This 
was eliminated, and all stock held by officers and 
former trustees was put in escrow (not to be delivered 
or sold until the company was completely financed.) 

We succeeded in getting a man from Orlando, 
Florida, to accept the presidency; the rest of the offi- 
cers were Jacksonville men. Each official was given 
$5,000 worth of free stock. The new officers imme- 
diately commenced using the company for a grab bag. 

A factory was leased in the city of Jacksonville, 
and the actual manufacture of engines started. The 
new president went to Washington, made a research of 
the patent office and found that the basic patent had 
been issued in 1 909 to an inventor in New York State. 
After the reorganization our stock sold rapidly, but 
we did not dare close our eyes at night for fear some- 
thing would be put over or some extravagant ex- 
penditure contracted. 

On July 7, 1920, we cancelled our contract, ac- 
cepted our loss of about $20,000, but we had made 
the company safe and assured a square deal to the 



NATIONAL INVESTORS GUIDE 35 

stockholders. I wish to add here that the trustees, 
under this declaration of trust, were given unlimited 
authority, without censor, to use the company monies 
as they saw fit. 

In June, 1921, I received a letter from the presi- 
dent, whom we had appointed, stating that he had 
resigned in January, 1921, and up to that time they 
were still trying to sell stock. 

My next was a chain store proposition out of St. 
Louis, Mo., known as the I. T. Company. This com- 
pany was operating under a Washington, D. C, char- 
ter, which is granted by a special act of Congress. Their 
authorized capital was $20,000,000. 

When I left the Florida proposition I left ten of my 
salesmen with the company. Of course, I was anxious 
to get something that was clean and all right, so I 
could give them employment. 

I made a trip to St. Louis, conducted a hurried 
investigation through such channels as were available 
to me, and found that this company had about 1 00 
chain stores in operation in Texas, Louisiana, and Ar- 
kansas. In the previous six months they had sold over 
$1,000,000 of their stock in Arkansas, and had opened 
about fifty stores in that State. 

I closed a contract for fourteen counties in east- 
ern Arkansas, where they were licensed to sell stock, 
all of the State of Tennessee, and the northern half of 
Mississippi. My contract was to have been con- 
firmed by letter the next day and mailed to Florida. 

I returned to Florida, got my organization together 
and arranged to move into Memphis. I wired asking 
why my contract had not been confirmed, and re- 
ceived an answer to the effect that the confirmation 
had been sent to Memphis. I arrived in Memphis 
about September 1, 1920, with my crew of salesmen, 
expecting to place them in Tennessee towns, but found 
that a license had not been granted them, so was 
obliged to place the men in Arkansas. 



36 NATIONAL INVESTORS GUIDE 

I asked for monthly reports on some of the chain 
stores and received them. In analyzing these reports 
I found that they were padded, and that each store 
was operating at considerable loss. I also learned 
that they had been denied a license to sell their se- 
curity in Tennessee and Missouri, and were evading 
the Blue Sky Law of Missouri by getting an Arkansas 
licensed broker to open offices in St. Louis, and take 
out a license in Missouri so that the company could 
operate under the broker's name. 

I also found the management of the company dila- 
tory, negligent, and in every way incompetent. I can- 
celled by contract on October 1, 1920, accepted my 
loss and went on about my business. 

This company was forced to file a petition in 
bankruptcy in June, J 92 J , and a receiver was ap- 
pointed. When the hearing was held, only the Sec- 
retary-Treasurer appeared. In his evidence he stated 
that he did not know the whereabouts of the president 
and vice-president. He further stated that prior to 
promoting this company the president had been a 
telegraph operator, and the vice-president an insur- 
ance agent, and had had no experience in merchan- 
dising. His evidence showed that the president, vice- 
president and treasurer were each receiving $1,000 
per month salary. They also held free stock amount- 
ing to $410,000, and had sold $2,600,000 treasury 
stock. 

He freely admitted that the principal business of 
the company was to sell its stock. The receiver stated 
that there were not enough assets to warrant an audit 
which would cost about $6000. You can imagine how 
much stockholders will receive in final settlement of 
the company's affairs. Incompetency and capitalized 
co-operation are responsible for the stockholders* loss. 

When I cancelled my I. T. Company contract, 
I made up my mind that I would not spend any more 
of my money or allow my salesmen to spend their* s 
in an effort to finance any company unless thoroughly 
investigated. 



NATIONAL INVESTORS GUIDE 37 

I then took on the D. S. Company of Hot Springs. 
This was another declaration of trust proposition. I 
arranged with this company for a drawing account 
for myself and $50.00 a week for each of my ten 
salesmen. I started them out only after I had had a 
distinct understanding with the company that they 
were to immediately reorganize as a corporation. I 
instructed my salesmen not to make any special ef- 
fort to sell the security until the reorganization was 
assured. 

This company's offerings were fragrant misrepre- 
sentations. Their prospectus referred to their com- 
pany as a corporation and their security as preferred 
and common stock. Under a declaration of trust only 
certificates of shares can be sold. Their prospectus 
did not state that the elective powers of this company 
were controlled by a board of trustees. Their declara- 
tion of trust authorized $75,000 preferred certificates 
of shares $10 par, and $150,000 common certificates 
of shares $10 par. 

This concern had acquired a pavilion and two 
springs on the main thoroughfare at Hot Springs, which 
had been a losing proposition for some time. One 
spring was known as the "D" spring, the other as the 
"R" spring. They were selling certificates of shares 
for the purpose of remodeling the pavilion, adding a 
dance hall and refreshment stands. They were also 
bottling and distributing the spring water. 

The president had been a former resident of Hot 
Springs and had operated a saloon known as the 
"show place" of Hot Springs. The secretary- treasurer 
had formerly been engaged in the coal and lumber 
business in Minneapolis, Minnesota. 

Two weeks after I started on this proposition, 
I again took up the matter with the secretary-treasurer 
regarding the reorganization. This man tried to make 
me believe that they were a corporation, were selling 
stock and did not intend to change. I told him plain- 
ly that I would not place myself or my salesmen liable 
under such misrepresentations. I waited one week and 
then tendered my resignation. I wrote the salesmen 



38 NATIONAL INVESTORS GUIDE 

that I was through financing until I could find a clean, 
meritorious proposition. I then asked them to pro- 
tect themselves by getting on another proposition or 
take the $50 and go to their respective homes. 
They all complied with my request — went home. 

I was reliably informed that these men were finan- 
cially able to finance the entire proposition had they 
cared to do so. In February, 1921, I read in a Little 
Rock paper that they had taken out a Missouri charter. 
I presume they eventually realized their mistake. 
Since then I have heard nothing further from this con- 
cern. 

I loafed in Arkansas until March, 1921, at which 
time I took up the stock sale in Missouri of a Chicago 
Rubber Company. I first operated out of Spring- 
field, later moving to Jefferson City where I was more 
centrally located. This company was chartered under 
the laws of Delaware with an authorized capital of 
$1,000,000, all common stock, par value $10.00. 

Before I commenced selling this stock, they were 
operating, according to their prospectus, a tire fac- 
tory at Bedford, Ohio, and another at Centralia, Illi- 
nois. They were supposed to be manufacturers of 
rubber clothing also. This was confirmed by the vice- 
president at a meeting in February 1921 in Eureka 
Springs, Arkansas, prior to my employment. 

In April, 1921, I met the vice-president again in St. 
Louis. It was then that I learned that they were not 
manufacturing rubber clothing and had not com- 
menced erecting a factory at Centralia. They were, 
however, having tires made under their brand on con- 
tract at Bedford. 

Their plan to promote the sale of stock, which is 
not a new one, was to offer the purchaser of ten shares 
or more at par the privilege of buying tires at a reduc- 
tion of 33 1/3% from their regular price list. About 
$1 500 worth of tires were purchased in June by stock- 
holders whom I had secured in Jefferson City. Upon 
investigation I found that their list price was 15% to 



NATIONAL INVESTORS GUIDE 39 

25% higher than that of the manufacturers of stand- 
ard grade tires. 

On July 9, 1921, it came to my ears that Illinois 
stock holders had asked for a receiver and a restrain- 
ing order to prevent construction of the Centralia 
plant. July 1 1 th I wired the company, and on the 
1 2th wrote them asking whether these reports were 
true. Not receiving any reply to my telegram I 
became suspicious and did not offer any more of their 
security. 

I then made arrangements to leave the state and 
go to Michigan. On July 1 8th, the day on which I 
was leaving, I received a letter from the company 
asking why I had not sent in any business. In this 
letter they answered my telegram and letter by stating 
that a cheap lawyer saw a chance to make some money 
by inducing some stockholders to get an injunction 
against the construction of the Centralia plant. 

As near as I can find out this company had been 
trying for three years to finance. I do know this- — 
that their cost of financing is too high, and judging the 
management from the manner in which they handled 
tire sales and shipments, the company will not succeed. 

This concludes my experience, excepting smaller 
issues of minor importance. 



40 NATIONAL INVESTORS GUIDE 

When reading the foregoing experiences, do not 
skip through them hurridly. Stop after each experi- 
ence, analyze the proposition, and ascertain, in your 
judgment, why the company failed. The evidence is 
plain. I have been more than fair and just with the 
various companies. 

When I look back over my stock selling record of 
the past fourteen years, I feel somewhat ashamed of 
it. I excuse myself in knowing that if I had not sold 
the securities someone else would. Under our laws 
my operations were perfectly legitimate. I made no 
representations that were not authorized and approved 
by the men who were officers and promoters of the 
various companies. 

I can truthfully say that during all my experience 
every sale made by me was turned into the companies 
with settlement under their terms and conditions. 

You would naturally suppose that at some time or 
other stockholders would have attempted to give me 
trouble. If anything like it was ever contemplated, I 
never knew of it, except once. I never tried to hide 
or lose my identity. 

When I was on the G. S. A. of Chattanooga, I was 
told by one of the stock salesmen who also operated 
in Mississippi that a stockholder in Grenada had had 
me indicted. I wrote to Grenada for confirmation and 
found that a lady who had bought some stock from 
me had gone before the grand jury, but none of the 
other stockholders would confirm her accusations. 
Consequently she failed in her attempt. The lady in 
question was a middle aged widow, and was the house- 
keeper at the hotel where I was stopping. 

In some way she learned my business; also that 
prominent business men in the town were investing. 
She requested the manager of the hotel to have me call 
on her. I declined, stating that this was a man's prop- 
osition and that I did not solicit ladies. The manager 
delivered my message, and she was very indignant. 
She called on me and gave me to understand that she 
was a business woman, and perfectly capable of hand- 



NATIONAL INVESTORS GUIDE 41 

ling her affairs; further, that her money was just as 
good as any man's, and that I had no right to decline 
to accept it. 

I compromised with her by giving her some litera- 
ture and application blanks, telling her that after read- 
ing it over if she cared to invest to fill out the appli- 
cation blank and leave it together with her check with 
the manager of the hotel. This she did the next day, 
and I sent it in. 

In all my experience this is the only party that I 
know of who would have given me trouble. 

The question naturally arises: Did I invest in any 
of these companies? Not a dollar, excepting the G. 
S. A., and that I did not lose. I had bought a block 
just before the last advance, and a party who had 
thrown considerable business my way wanted it. He 
insisted that I let him have it. I thought that I was 
doing him an unusual favor when I granted his request, 
but it turned out to be a very lucky transaction for me. 

I thought the company was as sound as the rock of 
Gibralter; it proved to be a good lesson for me. I 
never invested or lost a dollar in any of the companies 
where I acted as fiscal agent or stock salesman. 

In reviewing my record I have one consolation, 
for which I am thankful — that I never took advantage 
of a purchaser or abused their confidence. 

I made it a rule not to sell ladies; therefore, I have 
no widows and orphans to be accountable to. In my 
fourteen years I never sold over one-half dozen ladies 
and then only when they were well-to-do and handled 
their own business affairs. 

I never asked a purchaser to buy. I simply ex- 
plained my proposition so that they sold themselves 
and set the amount. No man or woman can say that 
they ever heard me say "I want you to buy" or "can 
I put you down for shares." 

I always explained to an investor when he was buy- 
ing not to take any more than he could handle with- 
out embarrassment. I never made an effort to sell a 



42 NATIONAL INVESTORS GUIDE 

security a second time to a purchaser. Many times I 
have had prospective purchasers say: "I would like 
a good block under certain conditions" which condi- 
tions I could easily have arranged. However, I would 
suggest that they take an amount which was convenient 
for them to handle, and later if they wanted more they 
could buy it. 

I would agree to keep them informed in case there 
was any change in price. Promoters have censored me 
for this more than once. To illustrate, in a Pennsyl- 
vania town a man had just sold a mill and elevator 
for $30,000 which represented his entire assets except- 
ing his home. I presented my proposition, he liked it 
and explained that he had just sold his property for 
$30,000, $10,000 cash and the remainder to be paid 
in thirty days. He stated that he would like to invest 
it all. I prevailed on him to take $10,000 and when 
he received the $20,000 to take more if he cared to. 
I did not call on him again or give the tip to another 
salesman and therefore saved him $20,000. 



NATIONAL INVESTORS GUIDE 43 



How Do They Get Away With It? 

If you will stop a moment and reflect, you will see 
that this is easy. Everyone is engaged in the same 
occupation — buying and selling. There are no excep- 
tions. The laborer, the clerk, the minister and the 
professional man sell their services — the banker is 
selling services and money — the business man and 
farmer are selling their products. In turn we are all 
buyers of something which promises gain or profit. 

It is the ambition of most every man or woman 
to create as large an estate as possible. While most 
all insist on doing it honestly and legitimately, some 
will resort to unfair means. You must understand 
somewhere and in some way a market can be created 
for most anything. 

The secret is in creating a market. It is hard to 
believe, but there is still a market for the gold brick, 
counterfeit money, wire tapping, etc. y. and there always 
will be. We frequently read in our daily newspapers 
where some one has made a substantial purchase, and 
there are a great many such purchases that do not 
reach the eyes and ears of the public. 

Many a good thing that would have been a great 
benefit to mankind, and a great source of income and 
profit to the originator has been relegated to the junk 
pile and scrap heap because of lack of initiative, tact 
and ability on the part of the originators and producers 
to devise a marketing plan. On the other hand a great 
many things with no value, in the hands of those with 
ability, have found ready sale and a market and have 
continued on indefinitely with great profit to the orig- 
inators and producers. Of course a new purchaser 
must be found each time. 

This is also true in financing. A great many things 
which have no merit have been financed, while others 
with merit have, for lack of ability on the part of the 
management, never even made a start towards creat- 
ing a market for the security. 



44 NATIONAL INVESTORS GUIDE 

The original capital necessary to any enterprise is 
BRAINS. They can get the money. The success or 
failure in financing an enterprise will depend entirely 
upon this factor. 

That selling is a science cannot be disputed. Some 
salesmen are trained by experience along special lines 
of business and professions, while others can adapt 
themselves to any line of business. 

As a simple illustration, why does the Italian make 
a success of a 2x4 fruit stand? The answer is that 
he has the knack of knowing how to place his wares 
to attract the eye, thereby creating a desire. He 
polishes his apples, sandpapers his pecans and ar- 
ranges them conspicuously and attractively. This 
same Italian would probably be a failure in a depart- 
ment store. 

The art of framing a successful stock selling cam- 
paign can be compared to a beautiful painting. A 
plan must be conceived, and put in type and printers 
ink in such a way that stock salesmen can paint a 
mental picture of safety and profit. 

Safety and Profit can be the title for a new inven- 
tion, oil and mining leases or a commercial enterprise. 

The next step is to get the material, which is men 
with influence and a reputation for fair dealing. They 
should be men who have been reasonably successful 
in accumulating worldly goods. They are persuaded 
to become officers or go on the board of directors. 
If they cannot or will not invest, free stock is given 
them. Next they should give a written endorse- 
ment of the proposition, and also boost it verbally. 
When all the necessary material is obtained, the next 
step is to get the canvas. 

The canvas we will call a charter, which is usually 
secured in the state where the broadest and most 
liberal can be had for the money. When this is re- 
ceived, and the organization completed, the next step 
is to get a good painter, an artist in his line. 

If he cannot be found among the officers, employ 
him to put the enterprise and material in type and 



NATIONAL INVESTORS GUIDE 45 

printers' ink with a smooth, fluent flow of forceful 
language. He will show the unusual profits of similar 
concerns, which can be attractively displayed. 

Then frame the picture with well appointed offices 
and swell furnishings; and the picture of Safety and 
Profit is then complete. 

After you have framed the picture, secure some 
high grade stock salesman on a liberal commission 
basis, and if they are willing to finance themselves, 
have the officers give them some names of acquaint- 
ances and the printers' ink. They will then sell Safety 
and Profit unsight and unseen, and the shekels will 
begin to roll in. 

Do not infer from the foregoing that all men who 
become identified with such companies in such a man- 
ner are a party to misleading the public, because too 
often they place too much confidence in others, and 
do not use the proper precaution by thoroughly inves- 
tigating and keeping in close touch with the company's 
affairs. 

It is claimed that the president elect of the S. L. 
Insurance Company of Memphis collapsed when he 
learned that the G. S. A. Company had failed. He 
was a strong man but this affair so preyed on his mind 
that he soon became ill. 

Now this man was president of a very large Mem- 
phis bank, and was a man known for fair, straight 
forward dealing. He was always ready to support 
anything that would be a local benefit. He was solicit- 
ed to become a stockholder and president. Already a 
great number of well known southern business men 
had subscribed, so he did not take the usual precau- 
tion of investigating the origin of the company, the 
contracts, etc. He, like myself, thought the plan was 
so well laid that success was assured, and it looked 
foolish to even think that any man or set of men could 
be a traitor to such a promising business. 

This man did not worry over his individual loss, 
but it was the loss sustained by those who invested in 
the company because he was to have been president, 



NATIONAL INVESTORS GUIDE 



and because he had endorsed and recommended the 

investment. 

Another similar deal one year later was pulled off 
in San Francisco. When the company was turned 
over to the officers and a settlement was made with 
the promoters, the president realized what the pro- 
moters would receive and how the supposed surplus 
of the company would shrink, he dropped dead in his 
office. 

Few men know or will take the time to find out 
that it only requires three or more men to organize. 
Two of the three men may be straw officers who are 
used to organize, make contracts, confirm them at the 
command of the instigator. Then go after big men 
and interest them in placing them on the board of di- 
rectors. These men believe in the proposition, go into 
it in good faith, endorse it, work for it, and do every- 
thing they can to assist in financing, only to find when 
the day of reckoning comes that they have been 
misled. 

The main trouble is, too many investors rely on 
the honesty of others, and so few are familiar with our 
corporation laws, privileges, restrictions, etc. There 
is not 1 % of the male population of the United States 
who have invested in stock that ever saw a charter or 
a set of by-laws. Ninety per cent do not even know 
the distinction between perferred, common and no par 
value stock. 

Another mistake is made by judging the qualities 
of a man by the money he accumulates. It doesn't 
matter how unfair or unscrupulous a man may be, he 
can always find associates. 

For illustration: I recall a man who, when a boy, 
was a disgrace to the community. There wasn't any- 
thing mean he would not do. At twenty years of age 
he had become a professional gambler, at which he 
accumulated enough money to lease a vending coin 
machine, and as the profits grew he acquired more 
machines. Eventually he had about $40,000. In 
the meantime he had secured some stock in both local 
banks and was elected to their board of directors. He 



NATIONAL INVESTORS GUIDE 47 

now has become a respected citizen. The foundation 
is laid should the opportunity present itself to him 
to lend his influence to anything within the law where 
there is money to be made. He belongs to the class 
whose motto is "get the money." 

There is another type of man who is absolutely 
honest, and who has made his money by the sweat of 
his brow. This man has always been envious of the 
man with clean face, unsoiled hands, boiled collar and 
shirt, who has also accumulated wealth. So when the 
opportunity presents itself for him to get in the boiled 
shirt class he is ready to grasp it and get some easy 
money. 

The majority, however, are honest and believe all 
others are honest. They are persuaded to go into 
these things, and on account of their ignorance of the 
corporation laws and their working privileges, they are 
carried along by a leader and nod in assent to every- 
thing this leader suggests. In this way they become 
innocent parties to anything their leader wishes to do. 



48 NATIONAL INVESTORS GUIDE 



THE PROMOTER 

The word promoter has a broad meaning, and 
covers everything of a promotion nature. In financing 
the term is applied to those who have charge of secur- 
ing capital. 

The originators of an enterprise, an invention, or 
the owner of oil leases, if not active in financing a 
company, are not termed the promoters. One man, 
or group of men, may originate an enterprise, but they 
may employ another man to promote it. 

We have promoters in plenty; they are to be 
found in every community where progress is found. 
They should be encouraged when it is for the good 
of the local community and not solely a selfish interest. 

We have a great many high class, well meaning 
promoters, who are constantly on the lookout and are 
planning things that will bring about better local living 
conditions. He is the man who says: "We need bet- 
ter roads, better streets, better sewerage, pure water, 
better lighting system. I cannot do it all myself, but 
will head the list with my money, and will go on a 
committee to assist in getting it up." He is the man 
of the community who is far sighted, studies the situa- 
tion, takes the initiative, and stands by the guns to the 
last trench. 

He calls a meeting and explains that good fortune 
has favored them with an opportunity for good water 
power if haltered. Let us harness it and invite fac- 
tories to locate with us. On the other hand he sees 
unusual shipping facilities. 

This unselfish promoter brings you your bank, your 
factories, etc., which means more opportunities for 
business men, increases value of real estate, and makes 
better marketing facilities for the farmers. 

Other promoters in the same community may see 
an advantage in better school buildings and facilities 
for better education. Another may be the instigator 



NATIONAL INVESTORS GUIDE 49 

and promoter of your local commercial club, whose 
duties are fulfilled by everybody putting their shoul- 
ders to the wheel. These are the promoters who put 
in their own money, time and good will, and protect 
your interest as well as their own They are the pro- 
moters that you should support. 

Illustration: These promoters, after careful con- 
sideration, decide that John Doe of the community 
is reliable, dependable, and capable of managing a 
shoe factory. Or a man in another community is 
known to them who is experienced, dependable and 
capable, who is willing to invest and assume the man- 
agement. These promoters devise plans, lay them 
before you with the explanation that they believe a 
shoe factory would pay, and are willing to head the 
list with their own money. Under these conditions it 
is your duty to listen, and if in your judgment the plan 
is feasible, no selfish interests being displayed, it is your 
duty to support it. 



50 NATIONAL INVESTORS GUIDE 



The Promoter You Should Avoid 

Is the promoter who has a selfish interest, and 
plays only a winning hand. He must always profit, 
whether the company succeeds or fails. 

Illustration: He lays his plans to organize a shoe 
company, selects first a suitable site, gets an option 
on it at a stated price, and arranges with the owners 
of the property that in case his plans carry, he is to 
be compensated by the owner. A side agreement is 
made accordingly. 

He then takes out a charter for $1,000,000 capi- 
talization, $500,000 preferred stock, non-voting, and 
$500,000 common, voting. After a charter is granted, 
he then induces the city to pay for the building site, 
and also a bonus for locating in the town. At the 
organization meeting, with his dummies, he votes to 
himself $25 1,000 common stock for services rendered, 
and also secures a contract to sell $500,000 preferred 
at par, drawing 7% accumulative, and with each share 
of preferred gives one-half share of common free. 
For this his contract provides that he is to receive 30% 
of the gross sale of stock. He further secures a con- 
tract with the company to be general manager of the 
factory when it is started, at a salary of $10,000 
per year. 

These contracts are duly authorized, made, signed 
and sealed, and entered in the minutes of the meeting 
of dummy directors. There can be only one of two 
results. 

If the company succeeds, he has profited person- 
ally from the purchase of the building site, the sale 
of stock, and has his $10,000 a year salary. He also 
controls the voting power of the company. He can 
say what the dividends shall be on the common. If 
the company makes good earnings, he votes to pay 
no dividends on the common, thereby disgusting the 
stockholders with their holdings. This causes them 
to unload their stock at a sacrifice in what is a paying 
proposition. 



NATIONAL INVESTORS GUIDE 51 

On the other hand, if the company fails, the pro- 
moter has realized a profit on the building site, in the 
sale of stock, and has received $10,000 a year salary. 
The stockholders lose all. Although the company has 
failed, this promoter is O. K., because he has made 
money for himself. 

It does not take a smart man to take advantage 
of the public's lack of knowledge in matters of this 
kind. Nevertheless, how often do you hear it said of 
a man who gets his money in this way that he is a 
clever business man. 

This is the same promoter who capitalizes a pat- 
ent, oil, or mining lease in the same way. He takes 
out a charter for a big capitalization, puts in the patent 
or lease for a large amount of stock, and while he is 
selling treasury stock includes his own private stock, 
selling it at the same time, which is most all profit. 

We have still another class of promoter, who takes 
a proposition after the stage is all set for selling stock. 
He does not look into the merit of the proposition, 
and is interested solely in the sale of the stock. Usually 
such promoters are given a good block of free stock 
and an extravagant fiscal contract for financing the 
company. 

This man is usually very clever and has the ability 
to take the stage setting and put it into printers' ink 
in such a way that it is easily sold. If a proposition 
of this kind in his judgment cannot be sold readily 
with big profits to himself, he does not touch it. 

Illustration: When the author of this book was 
tendered a liberal contract to finance a company in 
Florida, had he been a promoter of this class, he would 
have financed a company in which the stockholders 
would have had no show in the world for their money. 
The company was formed and planned solely for sell- 
ing certificates of shares for a profit. 



52 NATIONAL INVESTORS GUIDE 



CO-OPERATION 

There is no word in the English language which 
has such a broad meaning as applied to financing. 
There is no other word that would mean greater suc- 
cess if our operations were confined to its true mean- 
ing. There is no other word that has been more mis- 
used or abused than CO-OPERATION. There is no 
other word that can lay claim to having carried the 
capitalization that CO-OPERATION has carried. It 
must have been originated for the purpose of obtaining 
capital and selling stock. 

This word, when used, in selling stock, opens the 
purse strings of the rich, the poor, the vain, the selfish 
and the miser. 

There is no word so meaningless in the practice of 
selling stock. Without it the stock salesman has lost 
one of his best assets. The proposition that will not 
permit of its capitalization has hard sledding. 

It is the only answer to the investor who asks: "If 
you have such a splendid investment, why do you 
solicit me, when I know of so many people who have 
money that are seeking investments such as you are 
offering me?" Mr. Doe, "We are not seeking your 
money; what we are after is your co-operation, which 
is worth more to the company than your money. We 
value your influence very highly, and consider that 
we are doing you a personal favor by permitting you 
to buy a limited amount of our security. We are 
allowing you this special privilege in return for the 
value of your co-operation in this company." 

The word has been abused in every line of busi- 
ness, even to banking. A group of men decide that 
there is a need for another bank. They will scatter 
the stock in the community, expecting not only the 
stockholder's business, but his influence as well, and 
his assistance is securing customers. 

This assistance and influence would be valuable 
to the bank if all the stockholders would co-operate in 



NATIONAL INVESTORS GUIDE 53 

this manner. They innocently forget this duty and 
obligation when they have money to deposit. Also 
when they want financial assistance. This is not the 
disposition of all stockholders, but does apply to 
the majority. 

The reason for this can be attributed largely to 
the timidity and fear of the stockholders. A man 
who is able to acquire stock in a new bank, as a rule, 
has been accommodated and favored by an older 
bank. Because of these favors he has prospered, and 
he feels more or less under obligations to the older 
bank when he has any banking business. 

There is another reason and that is, he feels per- 
fectly at home with the officers of the older institution. 
They know his needs and are perfectly familiar with 
his credit standing. They always accommodated him 
when his demands were reasonable, and always gave 
him good sound advice. These things are not easily 
forgotten. 

When this man takes stock in the new bank and 
promises co-operation, his intentions are good, but 
the older associates, like the old arm chair at home, 
are hard to give up. 

He realizes when it comes to patronizing his own 
bank that the feeling of intimacy with the officers is 
not there. They are not familiar with his affairs, so 
he feels timid about unfolding his plans, etc., when 
they are already known to the older concern. When 
it comes to borrowing money, there is always an ele- 
ment of anxiety as to whether or not the accommoda- 
tion will be granted. In consequence, when he has 
money to deposit he carries it to the older bank to 
maintain his credit standing. If there is anything in 
the world that is discouraging to an active, straight- 
forward business man or farmer, it is a turn-down, 
no matter what the excuse may be. 

This lack of co-operation is not always the fault 
of the stockholders. A great many times the blame 
can be attributed to the officers of the bank. They 
do not take the personal interest in the stockholders 



54 NATIONAL INVESTORS GUIDE 

that they should. The officers should make it a part 
of their business to establish close relations with each 
stockholder and depositor. The stockholder and de- 
positor should be made to feel that the bank is inter- 
ested in their success, and ready and willing to assist 
them in everything at all times when consistent with 
good business. 

Co-operation is valuable when honestly applied. 
It is also valuable to the stock selling scheme, but in 
most cases very expensive to the investor. The trou- 
ble has been that the promoter only sought co-opera- 
tion so long as it served in securing buyers for stock. 
As soon as the stock was sold, co-operation was dis- 
carded. 

When selling insurance stock, the principal asset 
to the promoters is co-operation. They co-operate 
with the bank by giving them a depository and loan 
contract in return for an investment in the company, 
and co-operation in seeking other local investors. If 
the company ever becomes a licensed, going concern, 
these contracts are usually forgotten. 

The chain store proposition: Mr. Farmer, if you 
will co-operate with us by buying our stock, we will 
reciprocate by opening up a local store and allowing 
you to buy your supplies at cost plus 10%. We will 
also agree to buy your produce, and your livestock. 
This will eliminate the middleman, known as the buyer, 
the commission merchant, and sell direct to the con- 
sumer. Under this plan we can buy your offerings at 
20% above prevailing prices. In this instance co- 
operation succeeds in selling the stock, but fails to 
do the rest. 

Mr. Car Owner, if you will subscribe for ten or 
more shares of our rubber stock, the investment will 
not only pay you well, but will enable you to buy 
your tires at 33 1/3% less than our regular printed 
price list. With your co-operation we will cut out 
the state agents, dealers, etc. Thus we are creating 
a market and financing at the same time, with but 
one cost. 



NATIONAL INVESTORS GUIDE 55 

Sounds good until you buy tires, and find that the 
price list is 25% higher than the lists of standard 
makes. When the company is financed the tire buying 
privilege is cancelled. Co-operation served its pur- 
pose again — sold the stock. 

Mr. Car User, invest with us. We are establishing 
a tire and accessory store, to be owned and controlled 
by its local stockholders. These stockholders can buy 
their tires and supplies at cost. After the store is 
opened it is found that this plan will not work. It is 
found necessary to sell in the usual way. Co-opera- 
tion served its purpose again by selling the stock. 

Mr. Car User, we are organizing a local oil filling 
station. If you will invest $250.00 with us we can 
pay you handsome dividends on your money. We 
will also allow the stockholders a rebate of 1 ]/2 c P er 
gallon on all purchases of oil and gasolene. The fill- 
ing station finds that it operates at a loss on this basis. 
Consequently the buying privilege is abrogated. Co- 
operation has served its purpose again. 

Mr. Prospective Automobile or Truck Buyer, you 
no doubt are familiar with the enormous profits made 
in the manufacture of automobiles and trucks. Look 
at what Henry Ford has done. We have secured con- 
trol of a new drive known as the double back action 
centrifugal drive. The president of the company used 
to play with Henry Ford's "bull dog," and is a find. 
He is a man who has extraordinary ability for manag- 
ing this industry. 

We want your co-operation; we value it highly. 
In return for your investment in our splendid com- 
pany which will pay you large dividends, we are going 
to allow our stockholders to buy their cars and trucks 
at dealers' prices, thus you v/ill profit in two ways. 
After the company is financed the story is different. 
Mr. Stockholder, we have found it necessary to abro- 
gate our agreement. We find we must have dealers, 
and we cannot get them where we have stockholders 
who are getting the dealers' profits. Co-operation 
served its purpose again. 



56 NATIONAL INVESTORS GUIDE 

Mr. Lumber, Coal and Cement Dealer, we have 
located an excellent phosphate rock and shale bed. 
You undoubtedly know the enormous profits made by 
cement companies. They now have a cement ex- 
change or association of manufacturers, which con- 
trols the price. 

We are going to build a modern, up-to-date ce- 
ment plant. We are confining our stockholders to 
dealers only, thus when we are financed we will have 
our distribution and dealers established. We will have 
no need for an expensive selling organization or manu- 
facturers' agents. Therefore we can ship you direct 
at less than association prices, which allows you a 
greater margin of profit. 

Mr. Dealer, we are financed, and we find that we 
must employ manufacturers' agents, cater to all deal- 
ers in our territory and get more money for our ce- 
ment, so we will, for the sake of our investment, have 
to abrogate our exclusive dealers' contract. Co-opera- 
tion served its purpose by selling the stock. 

The word co-operation has been capitalized in 
every line of business and every state in the union for 
the purpose of selling stock. 



NATIONAL INVESTORS GUIDE 57 



OUR CORPORATION LAWS ARE NOT 
UNDERSTOOD 

Our corporation laws are good laws and necessary 
to show pro rata ownership in a business where more 
capital is required than those in charge of a business 
are able to supply. 

Consolidated capital properly managed has a 
great many advantages not only to the owners of 
such capital but to the general public. 

Union of capital properly administered often re- 
duces cost of manufacturing, selling, etc., which means 
reduced cost to the consumer. The above circum- 
stances brought about our corporation laws. 

Our laws are all right if adhered to, but too many 
make it a part of their business to apply them to a 
selfish purpose. 

We should have a course in our common and 
graded schools in both commercial and corporation 
law. There is no part of the general education so 
sadly neglected as laws governing every day transac- 
tions. We first teach our children to read, spell, write, 
compute and use the English language. If we can af- 
ford it, we give them special training in farming, pro- 
fessions, etc. If they succeed they naturally have use 
for the principles of commercial law. They are sure 
to be solicited to join corporations at some time or 
the other. Why not in our common schools give our 
children these advantages? We teach them history, 
botany, physiology, rhetoric, etc., that are not nearly 
so essential in life as commercial and corporation law. 

All of our states have corporation laws. In prin- 
ciple they are about the same. There may be some 
minor differences, such as the cost of a charter, privi- 
leges, taxes, etc., but in the main they are intended to 
answer the same purpose. 

If a charter is desired, application must be made 
to the Secretary of State in the state where the charter 



58 NATIONAL INVESTORS GUIDE 

is wanted, on blanks provided for this purpose. This 
application, setting forth the required authorized capi- 
tal, classified and divided into equal shares, and also 
setting forth the intent and purpose of the company, 
bears the names of the subscribers to the capital stock, 
with the amount subscribed set opposite their names. 
This application must be duly sworn to before a notary 
public. 

It is then forwarded to the Secretary of State, who 
holds it until it has been published once each week 
for four weeks in a newspaper located in the county 
in which the company is asking for a charter to do 
business. If there is no reasonable or just reasons why 
such a charter should not be issued, the Secretary of 
State issues what is known as a charter for the com- 
pany to do business, as provided under the corpora- 
tion laws of the state. 

An organization meeting is then held by the in- 
corporators, and officers elected. They are usually a 
president, secretary, treasurer and board of directors. 
An officer can hold more than one office and can also 
be a member of the board of directors. The organiza- 
tion does not necessarily have to be completed at this 
meeting, but must be enough to function as prescribed 
by our corporation laws, and in keeping with the ap- 
plication for charter granted. 

At this meeting at least 10% of the authorized 
capital must be paid in. The secretary must keep a 
record or minutes of all the business transactions at 
this meeting, which are filed away and usually read 
and approved at the next meeting. 

The payment of this 10% does not mean that this 
must be paid in cash to the treasurer. It can be 5 1 % 
and paid in services rendered or to be rendered, pat- 
ents, real estate leases, etc. Here is where the un- 
scrupulous take the advantage by inflating values, and 
causes to be issued what is termed "water stock." 

Next, a set of by-laws are drawn up, approved, 
adopted and made a part of the record of the meet- 
ing. This is another opportunity for the unscrupulous 



NATIONAL INVESTORS GUIDE 59 

to take advantage of the situation. He can have the 
by-laws so drawn as to give one or more of them un- 
limited power and unrestricted control in the handling 
of the company's affairs and money. 

Usually only the common or no par value out- 
standing vote, and seventy-five percent are required 
for a quorum. Each share is allowed one vote, and 
voting shares are only allowed to elect directors. 

As already stated, corporation laws in the differ- 
ent states are not the same. Some states require that 
each share of all outstanding stock shall vote, pre- 
ferred, common or no par value. The usual function 
of the officers is as follows: The president is usually 
known as the general director of the business, and dic- 
tates the policy of the company with the approval of 
the board of directors, and as provided by the by- 
laws of the company. The Board of Directors as a 
rule are in odd numbers such as 3, 5, 7, or 11, etc. 
In passing on matters of importance this makes the 
vote of the president the deciding or majority vote. 

The duties of the secretary are to keep a record of 
all transactions of the company in keeping with our cor- 
poration laws; also a complete record of what is known 
as the minutes of the meetings of the board of direc- 
tors. In addition to the minutes of the meetings, con- 
tracts, by-laws, charter, etc., this office has charge of 
the accounting department. In most companies the 
secretary is the first to receive all moneys, see that 
proper credits are made and at all times know the daily 
cash balance of the company. At stated intervals, 
usually daily, the secretary should turn over to the 
treasurer, all moneys received and get a receipt for 
same. The purchasing department should give the 
secretary a copy of all purchases made so that when 
the merchandise arrives and is checked off, the sec- 
retary can issue an order on the treasurer for the 
amount due. 

The duty of the treasurer is to accept all moneys 
received from the secretary, and deposit in some bank- 
ing institution to the credit of the company. He should 
only pay out money on orders from the secretary, and 



60 NATIONAL INVESTORS GUIDE 

at all times should know the actual balance, which 
should also be known to the secretary. The company 
usually issues a check signed by the treasurer. Some 
companies' by-laws provide that this check before be- 
coming valid must be also countersigned by either the 
secretary or president. 

The by-laws ordinarily provide that in case of ab- 
sence of an officer, a designated officer shall act in 
his place. The by-laws may also further provide for 
vice-presidents to function in the absence of their su- 
periors. Provision can also be made for an assistant 
secretary or assistant treasurer to act in the absence of 
the secretary or treasurer. 

The president does not always hold the deciding 
vote. Sometimes the by-laws provide for the chairman 
of the board of directors to have the deciding vote. 
Again this chairman of the board of directors may be 
the president. 

The by-laws of a company are also subject to 
amendment according to their provisions. 

Under the laws of some states the by-laws are 
made and adopted by a quorum vote of the stock- 
holders. These by-laws contain the duties of the var- 
ious officers. Again the privilege of making by-laws 
may be empowered to the board of directors by at 
least a quorum vote of the stockholders. By-laws are 
usually made during the organization meeting. At 
this meeting the company may have only three or four 
stockholders. 

Our corporation laws provide that the books and 
records of a company shall at all times be accessible 
to stockholders of record unless it can be shown that 
a stockholder is prejudiced against the best interests 
of the company. The stockholder has recourse in case 
this privilege is denied. He can sue for an accounting. 
A certain amount of voting stock can also get a re- 
straining order or an injunction when good and suf- 
ficient reasons are shown that the affairs of the com- 
pany are in strained circumstances, or the company is 
operating irregularly. Our corporation laws define 
these privileges very clearly. 



NATIONAL INVESTORS GUIDE 61 



Declaration of Trust 

There is nothing new about a declaration of trust, 
but it has only come into general use since the advent 
of our blue sky laws and blue sky departments in var- 
ious states. After most of our states were operating 
under these laws, our questionable promoters tried to 
find a way to defeat them. Most of our states had 
made no provision for the declaration of trust, so 
technically it did not come under the supervision of our 
blue sky departments. 

This left an opening, as stated above, for the ques- 
tionable promoter. He was quick to take advantage of 
it, because he was not obliged to seek approval of it 
in the various states under our blue sky laws. As a 
further disguise some of the promoters got up their 
literature in such a manner as to make the public be- 
lieve that they were operating under our corporation 
laws. While the application blanks or contracts for 
the purchase of stock would read "certificate of 
shares" very few purchasers knew the difference be- 
tween an application for stock under our corporation 
laws, and an application for certificate of shares under 
a declaration of trust. 

Certain firms of lawyers in large cities soon found 
this field of operation very profitable, and advertised 
throughout the country the advantages of a declaration 
of trust. Consequently a great many declaration of 
trust companies sprang up all over the country. A 
great many innocently availed themselves of this op- 
portunity to capitalize, not understanding the true 
character of such a trust, nor did they abuse these 
privileges, or have any intention of doing so. Others 
less scrupulous took advantage of all the powers given 
them under such a declaration of trust which eventually 
placed this manner of doing business in bad repute. 

A declaration of trust, under certain circumstances 
is very necessary, and not only works to the best inter- 
ests of the stockholders but the general public as well. 



62 NATIONAL INVESTORS GUIDE 

This is why such a privilege of co-partnership was 
created. A declaration of trust is advantageous in this 
respect — where a company of large capitalization has 
become financially involved, and immediate financial 
assistance must be had. I have in mind one very 
large concern well known all over the United States. 
At the time they were capitalized at $20,000,000 and 
were obliged to have $6,000,000 immediately, or ask 
for a receiver. This company secured the $6,000,000 
under a declaration of trust agreement with the under- 
standing that those furnishing the $6,000,000 could 
take charge of the business for a stated length of time 
until the money could be returned to them without dis- 
turbing the corporation. 

Under the terms of this declaration of trust it was 
provided that the trustees would loan the $6,000,000 
under certain conditions, namely; that they be privileg- 
ed to direct the management of the company, weed out 
all dead timber, and such parts of the workings that 
were unprofitable to the company. 

There are many such instances as this, where a 
declaration of trust fills a great need. It also serves 
the purpose, under what is known in our corporation 
laws as a closed corporation. 

A company is termed a closed corporation when 
the entire authorized capital is all subscribed and paid 
in when the charter is granted. A declaration of trust 
can also be applied under the same circumstances to 
good advantage. A declaration of trust is a co-part- 
nership agreement providing for the intent and pur- 
pose of the company, and can be drawn to conform 
almost to our corporation laws, excepting that the 
board of directors are known as a board of trustees. 
Under a declaration of trust the officers are elected 
by the board of trustees from their number, and 
usually this board of trustees are given broad and 
unlimited power with a further provision that they 
are not to be censored in directing the management of 
the affairs of the company. 

A declaration of trust can be so drawn that none 
of the share holders may vote, and only the board of 



NATIONAL INVESTORS GUIDE 63 

trustees can fill a vacancy in case of death or resigna- 
tion of one of its members. 

A declaration of trust should be placed on file in 
the county where the executive offices of the company 
are located, and should be accessible to those who 
may wish to become financially interested in the com- 
pany. 

Under a declaration of trust they may classify their 
shares, and they may vote, but remember that this is a 
co-partnership agreement and such a company does 
not come under the jurisdiction of our corporation 
laws. 

A great many of our states were quick to see how 
the public could be mislead and their confidence 
abused under a declaration of trust and immediately 
made this manner of doing business subject to the 
supervision of their blue sky laws, while others have 
not done so. 

One, when investing, should make sure whether 
they are buying corporation stock or certificate of 
shares in a declaration of trust. If found to be a 
declaration of trust every means possible for investiga- 
tion should be used before investing money. The 
well meaning company will have no objection to this, 
and will welcome such an investigation. Those who 
are inclined to take advantage of the public will be 
found out. 

It can be readily understood that there must be 
some advantage to an organization where they choose 
to operate under a declaration of trust when each and 
every state has corporation laws under which a com- 
pany can operate In other words when it is found 
that an organizing company is operating under a dec- 
laration of trust, there is a reason for it. This reason 
should be found out before investing. 



64 NATIONAL INVESTORS GUIDE 



Our Blue Sky Laws 

This law originated in the state of Kansas about fif- 
teen years ago. At that time Kansas had become very 
prosperous, and was located close to our mines and oil 
fields. The public was being abused by unscrupulous 
oil and mining promoters to such an extent that blue 
sky laws and a blue sky department were created which 
provided that securities to be sold and plan of opera- 
tion must conform to the blue sky laws. Then a per- 
mit or license is given authorizing the company to 
solicit subscriptions. 

Two years after this law was made and the blue 
sky department created, the then governor came out 
with a public statment claiming to have saved the in- 
vesting public over $7,000,000 in two years time. 
With this good showing, other states commenced to 
pass blue sky laws and create blue sky departments, 
and it has taken practically fifteen years for the other 
states to apply the same laws. This situation brought 
out the declaration of trust. 

While our blue sky laws and blue sky departments 
are well intended, they are handicapped in most states 
in covering the situation. In some states they have 
been detrimental. An article was published in the 
Kansas City Star in April, 1921, that the investors were 
seeking a blue sky law that had teeth in it because 
their present law instead of becoming a protection had 
become an asset to the unscrupulous promoters. This 
statement claimed that Nebraska had invested over 
$200,000,000 in 1920 in stocks that had turned out 
to be worthless, which had been licensed by the blue 
sky department of Nebraska. 

It is a well known truth that companies that were 
able to get a permit from our blue sky departments by 
the skin of their teeth have immediately on getting this 
permit, capitalized it, and the permit of their salesmen 
in selling their stock. One great fault with our blue 
sky laws today is that they are not the same in the 



NATIONAL INVESTORS GUIDE 65 

various states. Then again the officers of the blue 
sky departments must grant a permit to the company 
that is organizing in keeping with the state corporation 
laws. If they did not the state would then become 
liable to the company applying for any damage or re- 
flection caused. 

Blue sky departments function differently in diff- 
erent states. In Michigan there is what is known as the 
Michigan Securities Commission, which consists of 
some of the state officials in conjunction with the state 
banking department, while some states function 
through the secretary of state, insurance department 
and state banking department Each state has different 
laws and different rulings that can be applied. 

For illustration: A company chartered under the 
laws of Illinois with general offices in that state may not 
be able to qualify under the laws of Illinois, but can 
obtain permits in other states. The author knows of 
one company operating in Central Illinois that was 
denied a permit to sell its stock in the state of Illinois, 
but by disguising this fact were able to sell their 
$1,000,000 capitalization in other states. 

Some states will permit of excess promotion allow- 
ance such as inflated values for free stock and a large 
cost permitted for organization. 

The author was offered three different propositions 
in the state of Missouri during the month of April, 
1921, and turned them all down on account of their 
excessive allowance for patents, real estate, etc. These 
companies had been passed on by the blue sky depart- 
ment and were issued a permit to sell their stock by the 
state of Missouri. 

Our blue sky departments are handicapped in some 
states on account of limited powers in regard to al- 
lowance for patents, real estate, services rendered, etc. 
The personnel of the company is not considered by the 
blue sky department. 

For illustration : One of the companies who solicit- 
ed me to sell their remaining treasury stock was located 
in St. Louis. Their charter called for an authorized 



66 NATIONAL INVESTORS GUIDE 

capitalization of $1,000,000. The company had been 
allowed by the state of Missouri, $600,000 of the treas- 
ury stock for their patent. This amount had been 
issued to the owners of those interested in the patent. 
The remaining $400,000 of treasury stock was offered 
to me to sell at par. I was to have been paid 25% 
commission for selling it. 

This company's patent covered a cotton picking 
machine which when atached to a tractor was supposed 
to save time, labor and cost of picking cotton. Upon 
a thorough investigation I could find no absolute proof 
that this machine was mechanically perfect, would 
stand the strain and was fool proof. Further the in- 
vestigation that I made of the personnel did not show 
that these men were capable of manufacturing and sell- 
ing a machine of this kind. 

Even though the machine was perfect, the person- 
nel good, the company would have only $300,000 
working capital when it was completely financed, yet 
there would have been $1,000,000 outstanding stock 
on which to base an earning. 

Another company was located in Springfield. This 
company had an authorized capitalization of $1,000,- 
000. They had been allowed by the blue sky depart- 
ment of that state, $501,000 or 5 1 % of the stock for 
patents. Also 25% for selling the treasury stock. This 
company had obtained this amount of stock for patents 
covering the machine that would manufacture its own 
gas as it was used. 

According to the literature of the company, this 
machine was particularly applicable and desirable 
where farmers wished to have their own water power, 
lights, etc. 

When I was being offered this stock to sell, it was 
pointed out to me that as the stock was being sold the 
price would be increased, and as the blue sky depart- 
ment made no provision for controlling this surplus, it 
could be divided between the promoters and myself as 
fiscal agent. 



NATIONAL INVESTORS GUIDE 67 

The author made a thorough investigation of the 
personnel, and found they were men who had not 
made a success of any business and were not financially 
responsible. Consequently he declined to accept the 
contract for selling the security. 

Another company was a declaration of trust which 
had not been filed with an authorized capital of $300,- 
000. This company had acquired a limited number 
of acres of supposed tripoli rock. There was no doubt 
as to there being tripoli on this property because they 
were making a washing powder and in a small way 
had been making filters. 

Under this declaration of trust, two men were to 
be given $ 1 5 1 ,000 worth of the certificate of shares for 
this property. One of the men had at one time in- 
vented a threshing machine, and the other was in the 
laundry business. These men were not experienced 
in manufacturing such articles as are manufactured 
from tripoli. Neither had they any experience in mar- 
keting such products. 

They had also amply protected themselves in 
handling the affairs of the company. They wished to 
sell $1 49,000 worth of certificates of shares with which 
money they were to build a factory at Springfield, 
Missouri. 

There had never been a test made of the property 
to ascertain the tonnage of tripoli. The author de- 
clined this offering and advised them to take out a 
charter under the laws of Missouri. 

In the judgment of the author, where stock is to be 
allowed for properties of this nature, it should not only 
be tested to find out the quantity but should also be 
appraised by outside disinterested parties, and only an 
amount of stock allowed in accordance with the ap- 
praised value. 

As stated before these circumstances teach that our 
blue sky laws should be uniform, and an exchange 
created among the blue sky departments of the differ- 
ent states. Every protection and authority consistent 
with good business should be given the officials of our 
blue sky departments. 



68 NATIONAL INVESTORS GUIDE 

In a limited way some blue sky departments re- 
quire a company to comply with certain rulings as to 
publicity and advances in price. These companies 
should also be required to furnish at the end of each 
week a financial report to the department. Some states 
merely require the company to be licensed. The per- 
mit is given and no further supervision is made during 
the financing of the company. 

Another provision that should be made is that 
under no circumstances can stock that has been issued 
for services rendered, real estate, patents, leases, etc., 
be sold until after the company is completely financed. 

A great many times the officials of our blue sky de- 
partments are seriously handicapped on account of 
our laws, although they try with every means available 
to them to protect the public. 

The capitalization of state permits and salesmen's 
permits to sell stock. We wish to explain how this is 
done. A stock salesman will present his proposition, 
the purchaser will say it sounds good, he is interested 
and will after making an investigation decide what he 
will do. The stock salesman or promoter then makes 
capital of his license by showing it to the prospect 
stating that such an investigation has already been 
made by the state and approved as this license signi- 
fies. 

The salesman further explains that the require- 
ments of the blue sky department are such that it 
would take the prospect six months to make such an 
investigation as is made by the state in which such per- 
mit is issued. They will explain to the prospect that 
their license is a recommendation from the state, so 
you will readily see how the intent and purpose of 
this permit is abused. All these permits, if carefully 
read, provide that the state in granting same does not 
recommend any security, which means that the state 
has investigated as far as possible, and under its laws 
has granted such permit. In bold type it tells the 
prospective investor to use his own judgment and to 
make further investigation. 



NATIONAL INVESTORS GUIDE 69 



Banks Are Ready And Willing to Co-operate With 

Their Customers 

All banks are very much interested in the organiz- 
ing and development of industries that in their judg- 
ment would prove profitable to stockholders and at 
the same time be of general benefit to the community. 
They are never found slackers when it comes to financ- 
ing worthy legitimate enterprises, because largely the 
success of a bank depends on the resources of its sur- 
rounding territory. 

Banks, however, are very careful and thoroughly 
analyze a proposition and make sure that it is prac- 
tically free from the extreme commercial hazard before 
they will co-operate with and support such an enter- 
prise. Banks are operated by men with broad experi- 
ence who are more or less familiar with all lines of 
business. They come in contact with those who are 
in all lines of business and become familiar with their 
inner workings. Consequently, they are better quali- 
field to analyze and pass judgment on investment 
offerings. 

For years banks have in a dignified, conscientious 
manner tried to protect their customers against hazard- 
ous securities. The success of a bank will be in keep- 
ing with the amount of its deposits which are in turn 
loaned and used in assisting enterprises that are prac- 
tically free from commercial hazard. This is not only 
to the interests of the stockholders of the bank but to 
the stockholders of the enterprise as well. 

Banks as a rule make it a part of their business to 
follow progress no matter where it goes. Thus they 
are familiar with what is going on throughout the 
country. Present day banking and banking of forty 
years ago can be compared with the present day twin 
screw steamship and our old walking beam side 
wheeler that was in use years ago. 

A legitimate straight forward promoter has no hes- 
itancy in going direct to the banker. The banker after 



70 NATIONAL INVESTORS GUIDE 

analyzing the proposition, if in his judgment the enter- 
prise is worthy of financing, is ready and willing to 
lend his support and co-operation. On the other hand 
if he does not find that it is free from extreme com- 
mercial hazard he will have no hesitancy in saying no. 

Bankers throughout the country have for years 
been trying to render a service to investors such as will 
be given by the National Investors Service Bureau. 
Bankers know immediately the brand of an unscrup- 
ulous promoter and have no hesitancy in discouraging 
investments in enterprises where selfish interests are in- 
volved. 

The promoter or stock salesman selling hazardous 
securities has no love for a bank. They will in every 
way in their power keep a prospective investor from 
consulting his banker, knowing full well that the banks 
in a very modest manner will discourage investments 
in anything that is hazardous. 

This is not selfish advice given out on the part 
of the bank. It is a part of their duty to safeguard as 
near as possible their depositors money, because it is 
to the mutual interest of banker and depositor. It is 
a fact that depositors have made investments in ques- 
tionable securities until their credit has been actually 
impaired with the banks. 

Banks watch their clientel carefully. As soon as 
they find a patron not using proper precautions, mak- 
ing hazardous investments and taking games of chance, 
they consider the paper of such a customer a hazard- 
ous risk. They do not know at what time such an in- 
vestor may be taken in by some unscrupulous promoter 
and ruined. This has often been the case. 

A great many banks now-a-days have created a 
department to assist in developing local enterprises. 
Sometimes the securities are underwritten by the bank. 
These offerings can be depended upon to pay the in- 
vestor a legitimate return. It would be wise for those 
who have money to invest to first consult their banker 
and find out what they have to offer. 



NATIONAL INVESTORS GUIDE 71 

Investors should remember this — that their bank 
has their interests at heart, and should be consulted 
when buying securities that are being offered to the 
public. As a general rule the banker will not say: 
"John, do not invest," but he will analyze the prop- 
osition and explain it to you in a way that will leave 
no doubt in your mind as to the soundness of their 
judgment. 

The promoter selling the hazardous securities will 
do everything possible to keep you from consulting 
your banker. Should you tell him that you expect to 
consult your banker he will do everything in his power 
to discourage you. 

This often keeps an investor from doing the thing 
he ought to do. The stock salesman's stock in trade 
when you suggest consulting your banker is this: 

"Mr. Investor, if your answer is dependent on what 
your banker is going to tell you, I will not return to 
see you for I can tell you in advance what he is going 
to say. You understand, Mr. Investor, that the bank 
is in the banking business to get your money on deposit 
and loan it to the profit of the stockholders. Con- 
sequently it is quite natural that the banker will dis- 
courage any investments which would mean the with- 
drawal of a deposit. He is not interested in you any 
further than the bank can profit by your being their 
customer. Mr. Investor, do you consult your banker 
when you wish to buy a cow, when you are buying 
your seed corn, as to how many acres you shall plant? 
Do you consult him when you wish to buy your fire 
insurance to protect your property against fire? Do 
you consult him as to making your will and who shall 
receive your estate after you are gone? No, you should 
be your own judge and conduct your business as your 
judgment dictates. 

"Allow me to ask you, has your banker made you 
what money you have? Is he responsible for the 



72 NATIONAL INVESTORS GUIDE 

money you now have on deposit in his bank? If not, 
why consult him? His interest is selfish." 

The author's advice to an investor is to use every 
available means for investigating before investing in 
stocks. Do not be afraid to consult your banker, for 
it is not only his duty but his wish to help you protect 
your money and prosper. 



NATIONAL INVESTORS GUIDE 73 



How the Average Investor Is Trapped, or Rather 
Induced, to Buy Securities 

The first thing necessary to make an issue of stock 
sell readily is to lay a foundation that seems reason- 
able and feasible whether it be capitalizing commer- 
cial enterprises, patents or leases. 

The next step is to interest a few men who have 
influence and prestige, and who are willing to back 
up the representations made by the promoter. Enough 
vacancies are left on the board of directors so that 
they can be distributed here and there where they will 
be of the most benefit in assisting in the sale of stock. 

The word "co-operation" must be applicable some- 
where in the proposition, and used as a good logical 
reason for soliciting subscriptions from the general 
public. Without this element a stock offered to the 
public is hard to sell. 

The usual procedure after the stage is all set, is to 
follow the line of least resistance. The officers and 
board of directors will write very strong letters on 
their own letter heads, setting forth reasons for being 
interested, and in their judgment the business will 
prove profitable. They also state that the business 
will be managed by clean cut, capable business men. 

After this the officers will, whenever the oppor- 
tunity presents itself, have something good to say for 
the company. They will also give the company names 
of acquaintances in other towns. In this way the 
nucleus of a stock selling campaign is laid. Selling 
stock can be compared to a snowball rolling down hill; 
the longer list of stockholders that can be shown, the 
easier it is to get more. 

In selling stock, the old axiom proves true. Get 
the bell-wethers of a flock of sheep and the rest will 
follow. As stated heretofore in this book, very few of 
the average investors are able to analyze and pass on 
the merit of a proposition. 



74 NATIONAL INVESTORS GUIDE 

Further they are not familiar with our corporation 
laws and declaration of trust as to how these organi- 
zations are made up. Therefore, they measure the 
future prospects of such a company by the names of 
those who already have become stockholders. 

The average stockholder is approached in this 
manner: "Your name was handed us by Mr. Blank, 
who is one of the directors of this company. He asked 
us to submit our proposition to you, believing that 
you would be interested in something good." The 
proposition is then laid before the prospect either in 
person or by letter. It is, of course, made to sound 
like an unusual offering, and the investment is usually 
made on the judgment of the man who gave the 
name, instead of the buyer using his own judgment. 

Usually a very active campaign is made to interest 
all the people possible in the town where the enter- 
prise is to be located. Each and every one is solicited 
to buy on account of it being a local enterprise. This 
support is usually obtained, and in most cases the 
investment is made on account of the influence of the 
men who are at the head of the proposition, and the 
fact that it is a local concern. 

This is splendid material to use in conjunction with 
co-operation in soliciting outside capital when it can 
be shown the prospective investor that the local people, 
who are supposedly thoroughly familiar with the propo- 
sition, are investing their money. 

This local influence is a part of the endless chain. 
One stockholder made will lend his influence in get- 
ting five more. 

The hardest question for the promoter to answer 
is when the prospective buyer asks: "Why do you 
solicit me when there are so many men with more 
money than I, who have greater influence and are 
seeking good investments?" This is answered in two 
ways. If the company is being organized in a small 
town it will be explained that the town is small and 
that there is not enough capital there to finance the 
enterprise. This makes it necessary for us to seek out- 



NATIONAL INVESTORS GUIDE 75 

side capital. Further, we would not sell it all in our 
town if we could for the very reason that the wider 
the distribution of stock the better it is for the com- 
pany. We value the co-operation of our stockholders 
more than we do the money they invest. This is why 
we allow you only a stated amount of stock. 

If the company is located in a large city, the 
answer is practically the same with the exception that 
it is explained that those who could be interested in 
the large city if given the opportunity, would take 
their entire offering which would mean control of the 
company and the elimination of the co-operation that 
can be obtained by wide distribution of the stock in 
various localities. This all sounds logical and reason- 
able, and usually the prospective buyer swallows it 
hook, line, sinker and all. 

Should the prospect be a man of great influence 
and well-known, he will be tendered a place on the 
board of directors, because possibly through his influ- 
ence a hundred or two thousand dollars worth of 
stock can be sold. This practice will be continued 
until the board of directors is complete as provided 
in the charter. 

When the company runs out of openings on the 
board of directors, sometimes a fictitious official posi- 
tion is created, such as associate member of the board 
of directors or a member of an advisory board. As 
many of these positions will be created as is found 
necessary in the sale of the stock. 

It is explained to the prospect that the reason 
they have been placed on the advisory board or asso- 
ciate board of directors is because they value their 
business ability and counsel to the company. It is 
also explained that they will be requested to attend 
all meetings of the board of directors and will be paid 
their travelling expenses and the usual $5.00 per day 
for their time. 

If a prospect intimates that he will be unable to 
devote too much time to the business itself, he is told 
that these board of directors' meetings are only held 



76 NATIONAL INVESTORS GUIDE 

once or twice a year. This of course would take very 
little of his time. 

It is surprising to know how many men will fall 
for opportunities of this kind, when the offering is 
nothing more nor less than bunk. The chances are a 
hundred to one that such members will never be noti- 
fied to attend a meeting. Nearly everyone who has 
money to invest is susceptible to offerings of this kind. 

From the very day that a stock selling campaign 
is started, the plum (which is an increase in value and 
price, with the inside information that the stock is 
liable to advance any day without notice) is placed on 
the end of a pole and held in front of the prospective 
investor. 

The prospective advance has caused many a man 
to invest money without taking precaution to make the 
proper investigation, because of the fear that he will 
be too late. 

Various companies and promoters have different 
methods of procedure in this respect. Some will hold 
out to prospective investors that an advance is imme- 
diate, and the tenor of all literature and correspon- 
dence intimates this. However, they may never 
advance their price during the entire selling cam- 
paign. It is a known fact that companies have actu- 
ally subscribed a million dollars worth of capital all 
at the one price, but from the very day that the cam- 
paign started the prospective buyer was led to believe 
that it would advance most any day. 

Some companies that have a good crew of stock 
salesmen in the field use the following plan. These 
men will work for say 30 days, during which time they 
will have kept a list of those who are very much inter- 
ested, and the reason why they have not been closed 
is for that lack of something which the literature or 
the stock salesman cannot create, or rather they could 
not whip the desire into a resolve to buy. 

The company will then send the prospective buyer 
or stock salesman covering the territory, a strong tele- 
gram stating that at a near date and at a certain hour, 



NATIONAL INVESTORS GUIDE 77 

the security will be advanced $1.00 per share. This 
has the desired effect and brings the prospect into the 
fold. 

This routine is followed throughout the stock sell- 
ing campaign. Sometimes on account of this fictitious 
advance, stock may be selling at five times par before 
the sale is completed and before any work is done on 
the prospective factory. 

The successful promoter keeps in close touch with 
what is going on and is always in touch with the pulse 
and feeling of the prospective buyer. This is true of 
their salesmen as well. 

If the stock sale is being promoted by mail, a fol- 
low-up system is used until the sale is made. If it is 
being handled by stock salesmen, the promoter is in 
daily touch with the salesmen and is ready to back up 
any emergency that may arise. 

For illustration — A salesman interests a prospec- 
tive buyer to the extent that he will invest $500 and 
take a 90-day option on $4500 subject to the accept- 
ance of the company. This is where an understanding 
has been made by the salesman and promoter either by 
wire or telephone. 

On receipt of the settlement and option by the 
home office, a letter will be written to the purchaser 
in the following manner, as suggested by the salesman : 

Mr. John Doe, 
Blank, Michigan. 

Dear Mr. Doe: 

Your settlement for $500 worth of our 
stock received; also your ninety day option on 
$4,500 more. 

We wish to thank you very much for the 
investment you have made with us. knowing 
that you have made an excellent one and that 
the only regret you can have in the future is 
that you did not buy more. 

Regarding your option, we have advised 
our salesman that we regret exceedingly that 



78 NATIONAL INVESTORS GUIDE 

we are unable to comply with your request in 
asking this long time privilege. 

The facts are, Mr. Prospect, our stock may 
be advanced any day; consequently, we have 
advised our Mr. Salesman to see you and 
arrange for some way to secure your wants 
now, thereby protecting you on the present 
price. 

The officers and directors of this company 
are very enthusiastic over our future prospects, 
and our security is selling much faster than we 
had anticipated. Therefore, we are sure that 
we will be completely financed in a short time. 

Again thanking you for your subscription 
and the interest taken in our company, which 
we are sure you will never have cause to 
regret, we are, 

Very truly yours, 

BLANKETY BLANK CO. 

A copy of this letter is sent to the salesman, who 
hurriedly calls on the prospect, and then and there 
arranges terms, etc., which conclude the sale. 

A great many companies lead prospective pur- 
chasers to believe that they limit the amount of pur- 
chase to any one person. The author of this book was 
never on a proposition that did not use this disguise 
in selling stock. The truth is that the promoters have 
already safe guarded themselves in the control of the 
company, and would not decline a purchase of any 
size. This limit talk appeals to the average investor 
who is not wise. 

This limit is often set by the stock salesman, and 
will depend largely upon the amount of stock the pros- 
pect can afford to buy. 

For illustration — The author called on a prospect- 
ive buyer in Lexington, Kentucky. At that time there 
had been no sales made above $5,000. In talking to 
this prospect the writer made the statement that any- 
one could purchase only $5,000 worth of stock in the 



NATIONAL INVESTORS GUIDE 79 

company. The prospect stated that he was very much 
disappointed, because he had wanted to invest 
$10,000. 

The author realized at once that he had made a 
mistake, and it required quick thinking^ in order to 
increase the sale to $10,000. He stood by the guns 
and accepted the $5,000 with the explanation that a 
party down the line had bought $5,000 and had inti- 
mated that he would be unable to pay for same which 
was then due. The author promised to see this party 
the very same day and if the $5,000 could be obtained, 
would wire back immediately. Of course this was 
arranged and the prospect got the other $5,000. 

As a rule very few letters are written when a com- 
pany is financing with stock salesmen. The corres- 
pondence is all done with the salesmen, and these 
letters are carefully coached so that there is no incrim- 
inating evidence to be found in them. If a letter is 
written to a stockholder or prospective stockholder, 
the letter is very carefully analyzed, and will contain 
nothing but suggestions. Very rarely will you find a 
letter which will estimate earnings or dividends that 
may be paid. 

It would also be wise for prospective investors to 
analyze letters of endorsements. It is very seldom 
that a letter of endorsement will convey any definite 
claim or make any promises. This is especially true 
when written by a man who has had business experi- 
ence. 

Sometimes a Iamb will be inveigled into writing a 
letter that is incriminating, but he does so innocently. 
Letters of endorsement usually read as follows: 

Mr. John Doe, 
Blank, Michigan. 
Dear Mr. Doe: 

Your letter asking me to tell you what I 
know about the Blankety Blank Company at 
hand. 

Messrs. Elmer and Frank Doe, president 
and treasurer respectively of this company, 



80 NATIONAL INVESTORS GUIDE 

have been known to me for a number of years. 
I have always found them straightforward in 
their dealings with me, and I see no reason 
why the company should not be successful. 

I have invested a blank amount in the com- 
pany (or I have subscribed for a block of their 
stock) and believe that under proper manage- 
ment the company's security will prove an 
excellent investment. 

Yours very truly, 

A letter of this kind is absolutely worthless in judg- 
ing the merits of a proposition. It does not tell the 
prospective investor anything that he should know. 
It does not explain the plan and purpose of the com- 
pany, and does not state whether these men are exper- 
ienced in handling such a business. In fact, there is 
nothing in the letter that amounts to anything or that 
can be used in passing judgment. 

Therefore, anyone making an investment on an 
endorsement of this kind must be doing it solely on 
the judgment or confidence he has in the writer. 

Mr. Prospective Buyer, have you noticed that you 
are always confronted with a list of stockholders, 
especially if it is a good long list? This is one of the 
companies' best assets in selling stock. 

If the literature used by these different companies 
is carefully analyzed, it will be noted that there are no 
definite claims made. All claims are carefully coached 
estimates, and are supplied with plenty of "ifs." 
Great stress is laid upon the success of similar propo- 
sitions and the figures brought out in prominent type. 

The real information an investor should have on 
which to base his judgment of the merits of the propo- 
sition are lacking. For illustration, if the company 
owns and controls 40 acres of available tripoli lands 
and it is estimated that there are one million tons in the 
deposit at a capacity of five thousand cases per day, 
they could operate for one hundred years. 



NATIONAL INVESTORS GUIDE 81 

The claim should be as follows: We have 40 acres 
of tripoli lands. Test holes have been made every 
hundred or two hundred feet all over the property, 
ranging in depths from 50 to 100 feet of absolutely 
pure tripoli. Mining engineers have computed the ton- 
nage at blank number of tons. 

This statement should be supported by a state- 
ment from the mining engineers who did the work and 
a blueprint or drawing of the property showing the 
test holes, etc. 

A statement should also be made that deposits 
from the different test holes had been tested by a reli- 
able chemist and found to be as follows in each of 
these test holes. This statement should be supported 
by the statement of the chemist over the seal of a 
notary public. 

Do not allow the company to sell you on "ifs" and 
"estimates." Do not be in a hurry to buy stock secur- 
ities. Stock that will not keep over night is like perish- 
able fruit and soon becomes worthless. 

Nearly all stock selling propositions come out with 
the bold announcement that this is an unusual oppor- 
tunity, and that opportunity knocks only once at every 
man's door. This statement should be reversed. 
Opportunity is always knocking at the door, but the 
unusual oportunity which brings ample returns for 
the investor's capital seldom knocks. 

You also, no doubt, have noticed in big type, 
references made to such men as Jay Gould, E. W. 
Harriman, J. W. Hill, John D. Rockefeller, John Wan- 
namaker, J. P. Morgan, Russell Sage, Marshal Field, 
Andrew Carnegie, Charles Schwab, Henry Ford, Elbert 
Gary. 

The following statement is attributed to Jay Gould : 
"I invested my money in companies, when, in my judg- 
ment, the plan was feasible and the management 
good." The following to Russell Sage: "I always 
invest my money in young companies where in my 
judgment the plan is feasible and the management 
capable. The best profits are made in companies 



82 NATIONAL INVESTORS GUIDE 

when they are young, before their stock has reached 
high price." 

Invariably mottoes are published of one or more of 
the above named men similar to the two given hereto- 
fore. Another saying that is universally used is one 
of Herbert Kaufmans, as follows: "In order to get a 
chance, you have got to take one. Sure things are 
poor things. When you strike a certainty you are sure 
to find that it has limitations. The gaining of great 
wealth almost means the taking of some risk." 

They fail to tell you that the average stock offering 
is all risk when the public is given an opportunity to 
buy. We herein include some of the questions asked 
the prospective buyer by a tire company that is 
financing : 

Where were you when the Dunlap Tire Company 
started with $112,000 capitalization and inside of 
two years had grown to a $15,000,000 company? 

Where were you when the B. F. Goodrich Com- 
pany of Akron, Ohio was organized with an original 
capital of $100,000? Bradstreet today places their 
assets at $94,000,000. 

Where were you when the Goodyear Company 
was organized and its common stock sold at $.50 on 
the $1.00? $100 would purchase two shares. 

Where were you when the McGraw Tire Com- 
pany of East Palestine, Ohio, offered its stock? 

Where were you when Alexander Graham Bell 
gave to the public the telephone? The lawyer who 
organized the company, and who afterwards became 
Governor of Massachusetts, refused to take stock at 
$10 a share for his fee of $3,000. Had he accepted 
the stock he would have received as his fee $60,000,- 
000. 

Where were you when Mr. Burroughs was carrying 
on hi,s experiments with the adding machine and 
attempting to secure sufficient funds to finance it ? The 
Burroughs Company has paid as high as 900% in one 
year. 



NATIONAL INVESTORS GUIDE 83 

Where were you when King Gillette was selling 
stock in his company in the city of Boston at $.50 a 
share? There were very few safety razors in use, and 
the average man did not foresee the great possibilities 
for Mr. Gillette's device. Many thought it a toy. 

We might in turn ask the tire company submitting 
these questions, where were you when the securities 
of any of these companies were offered to the public. 
Was it during the process of organization or after the 
company had become dividend paying, and sold at a 
high price? 

None of these securities were offered to the public 
in the beginning. It is true that the then stockholders 
made enormous profits, which is usually the case in a 
successful enterprise. Even then such securities are 
taken by local financial interests, and are rarely found 
in the hands of the public. 

A statement has been made that Swift and Com- 
pany has 85,000 stockholders scattered from coast to 
coast. If the real truth of this statement were disclosed 
it would be found that these securities are owned by 
listed stock and bond brokers and savings banks 
throughout the country. In some instances they have 
been sold to the public. This accounts for the wide 
distribution. 

It is claimed that the Bell Telephone has over 
100,000 stockholders. This condition was brought 
about by increased capitalization, and most of this 
stock is held by the employees of the company. It 
is a known fact that the record made by the Ford 
Motor Company has been used as capital by promoters 
in every city, town and hamlet of the United States, 
and the general public led to believe that they had an 
opportunity to invest in this company when it was in 
its infancy. The truth is that this offer was never made 
to the public. They have never had a chance to buy 
any of Ford Motor Company's stock. It was then and 
is now a closed corporation, and it is generaly under- 
stood that what stock is held by the public is owned by 
the employees of the company. None of this is the 
original capitalization. 



84 NATIONAL INVESTORS GUIDE 

A statement was issued in the Detroit Free Press 
in Detroit, in 1915, that at that time there were 450 
automobile manufacturers in the United States and only 
twelve of the 450 had ever paid a dividend. Another 
statement was made that at that time we had one 
hundred manufacturers of motor trucks and only four 
had ever paid a dividend. 

These facts are not stated when promoters are 
financing companies in California, Arkansas, Texas, 
Florida, Tennessee, Illinois and other states. 

The great trouble with the average investor is that 
he does not think for himself, does not analyze and 
does not investigate when he is investing his money in 
stock. This, of course, does not apply to listed stocks 
and bonds. 

Listed stocks and bonds are passed on and 
recorded by our stock exchanges and have a daily 
market value the same as our agricultural products of 
this country, such as wheat, corn, oats, etc. If a 
farmer wishes to keep posted on the prices of his 
products, he refers to the daily papers and market 
reports printed in same. 

If you will refer to the stock and bond market of 
listed securities, you will find the daily quotations of 
all listed stocks and bonds and their daily cash value. 

Very frequently when buying organization stock, 
the investor will ask, "In case I wish to sell my stock, 
where will I find a market?" The stock salesman's 
answer is this: "The best stocks are held privately and 
are not listed in our stock and bond markets. The 
reason for this is that they are not for sale. However, 
Mr. Prospect, should you find it necessary to sell your 
stock, advise the officers of the company, for there is 
always on file a waiting list. Many stockholders wish 
to buy more of the security. The company will act as 
your exchange when you get ready to sell your stock 
without cost or charge to you. Thus you are always 
assured a higher market price.'* 



NATIONAL INVESTORS GUIDE 85 



Stock Salesmen 

We have salesmen in various lines of business, but 
the professional stock salesman is the most clever of all. 

When thirty years old the author of this book was 
considered one of the best specialty salesmen who ever 
carried a specialty line out of Chicago. He had also 
sold all kinds of specialties and merchandise products 
to wholesale and retail trade in large quantities before 
becoming a stock salesman. Consequently he is able 
to distinguish between the salesman known as a 
specialty salesman and the stock salesman. 

There are several different classes of stock sales- 
men. Nearly every proposition that is presented to 
the public will bring out a new crop, but only a few 
ever enter the professional class. The professional 
class are the men who can sell stock in any proposition 
that can be sold. We have another class who are 
salesmen who can find prospects, interest them, but 
known as bird dogs to the profession. They are the 
salesmen who can find prospects, interest them, but 
cannot bring about and whip a desire into a resolve to 
buy. His partner usually is a professional. He has the 
ability to do the closing. We have another class who 
can only interest prospects and buyers in small quanti- 
ties. There is another class that will only present a 
proposition that can be sold in considerable amounts. 
One or more professional stock salesmen are to be 
found in every stock selling proposition, and he is 
almost always a master at his work. 

A professional stock salesman is not a bad fellow. 
He is usually possessed of a pleasing personality, tact 
and the ability to put it over. His very approach 
impresses confidence, and his able presentation of his 
proposition brings about an immediate desire and 
resolve to buy. He is a man that can take the per- 
sonnel of the company and its literature and endorse- 
ments and paint a beautiful picture that can be readily 
seen and believed by the prospective investor, and 



86 NATIONAL INVESTORS GUIDE 

walk out with the money, for he certainly is selling 
blue sky and can make imagination almost become a 
reality. 

Do not think for one minute that the stock sales- 
man has an easy job. It is one of the most nerve 
racking occupations known among our professions, 
and requires a man to be physically fit to continue in 
the business. 

It has been observed by the author that three or 
four days of real hard work per week is all the average 
stock salesman can stand, because his nerves soon 
become frayed and shattered and rest is required. 

The great percentage of successful professional 
stock salesmen finally fall victims to the use of stimu- 
lants, and some become drunkards who cannot be 
reformed. When the writer of this book started in the 
business, headquarters were maintained at the execu- 
tive offices as a rendezvous for the stock salesmen 
where they could temporarily relieve their shattered 
nerves, A promoter once said that he had notified all 
the salesmen that if they must resort to stimulants, to 
refrain from doing so when in the field, but they had 
the liberty to do so when at headquarters where it 
would not become known to the public. 

You would naturally wonder why it is such a nerve 
wrecking business. The reason is very simple if you 
know the work of a stock salesman. First of all, he 
must be a good judge of character and human nature, 
for there are no two prospects that can be found who 
are exactly alike or who can be handled in the same 
way. It usually takes from one to three hours, and 
sometimes ten hours, actual hard mental labor to 
extract money from an investor. 

The stock salesman is selling something that is 
imaginary. Consequently, he must take the company's 
literature and for the benefit of the prospective buyer 
build a plant, operate it and show a profit. He has 
no concrete evidence to show. 

Can you imagine one farmer selling another a horse 
by painting a beautiful mental picture of it? Can 



NATIONAL INVESTORS GUIDE 87 

you imagine a farmer obligating himself to pay $5,000 
or $10,000 without seeing the horse? You would 
say that the farmer is a fool who would obligate him- 
self for such an amount without seeing and examining 
the value and title of the horse. 

The stock salesman paints a beautiful mental pic- 
ture every time he makes a sale. The purchaser, as 
a rule, buys without seeing or knowing what he is doing. 
The salesman knows when making a sale that the 
chances of the purchaser ever seeing his money again 
are few. 

The first thing a promoter or fiscal agent does after 
concluding a contract with a company for the sale of 
stock, is to locate all the professional salesmen they 
know and keep constantly on the lookout for others. 
They continue this until the stock sale is practically 
closed. 

Few of these promoters make advances to stock 
salesmen. They are usually employed on a strictly 
commission basis, ranging from ten to twenty-five 
percent. 

The stock salesman, of course, would rather sell 
a meritorious proposition if it can be sold fast enough 
or in sufficiently large blocks to enable the salesman to 
make money. 

On the other hand, he is only interested as to 
whether the stock will sell readily. If, in the judgment 
of the stock salesman, he can sell it to a profitable 
advantage, he will take hold of it. When passing on 
a proposition he first considers the personnel of the 
company and how far their influence will reach. Also 
are they enthusiastic or merely luke-warm, and, as we 
express it, will they "stand hitched." Will they verify 
any reasonable statement made by a stock salesman? 

The next consideration is the prospectus. From 
this the salesman plans his selling canvass. This pros- 
pectus should contain such facts and figures that will 
confirm his statements. 

Next he considers the value of the company's 
endorsements, as to whether they are written by influ- 
ential men; how strong the proposition is. 



88 NATIONAL INVESTORS GUIDE 

He then finds out from the officers of the company 
whether they will furnish leads. If so, whether they 
will furnish letters of introduction to these leads. 

If the company can furnish letters of introduction, 
the salesman takes these letters and calls on the pros- 
pective purchaser. If such letters are not available, 
he follows the lines of least resistance, which depend 
largely on the nature of the proposition. 

If it is a proposition that will appeal to a certain 
class of business men or professional men they are 
visited first. If the proposition is of such a nature 
that it would apply to anyone who has the money to 
invest, he attempts to interest the bell wether of the 
community or the man with the most influence. 

It is this opening wedge or necleus that the stock 
salesman must obtain that is his hardest work. If he 
can interest one or more prominent men in a com- 
munity his hardest work is done for the rest will follow. 

Stock salesmen have gone into a community and 
have spent from four to ten days interesting and 
closing men of prominence before doing any general 
work. The experienced stock salesman knows that 
it is useless to go into a community and commence 
promiscuously soliciting subscriptions for stock. If he 
did this he would soon wear his proposition out and 
make no sales. 

The question is often asked: "Where does a stock 
salesman get his names?" This is a very simple mat- 
ter. The experienced stock salesman can go into a 
town of 2,000 population unannounced and in one 
day get the name of every man who has money stand- 
ing in the community, as well as his characteristics. 
He can do this easily without creating any suspicion. 

These names can be secured in several different 
ways. One way is casually to engage the hotel man 
of the town in conversation about the town, its differ- 
ent people, etc., and in a very short time the stock 
salesman has everything that he wants to know. Again 
the stock salesman may tell the hotel man the nature 
of his business and that he expects to be a guest at 



NATIONAL INVESTORS GUIDE 89 

the hotel for several days and would like to have 
some information regarding local people who are in 
a position to invest. As a rule the hotel man is very 
glad to accommodate his guest in this way, and in an 
hour or two the salesman has enough names to keep 
him busy for two weeks. 

A stock salesman will then analyze the situation 
and will probably interview two or three men whose 
business or profession would enable him to under- 
stand the nature of the proposition. 

While on the G. S. A. Company of Memphis, the 
management instructed the author to go to Helena, 
Arkansas. On arrival in Helena, he found the situ- 
ation in a muddle. The stock salesman who had been 
working this territory had promised to share a part of 
his commission with some of the stockholders who 
had assisted him in closing sales, but had not kept his 
promise. Consequently these stockholders were not 
very friendly. As the author did not care to take the 
time necessary to patch up grievances, he decided to 
leave. 

The author picked up a map and selected a town 
of about 1,500 situated in the Delta of Mississippi, 
about sixty miles from Helena. This was known as a 
prosperous community. 

The author arrived in this town on Saturday, 
unleashed two beautiful bird dogs, inquired around 
town who the sportsmen were, and had soon arranged 
for a hunting party on the following Monday. The 
next two or three days were spent in hunting. 

It was quite natural for the local populace to be 
curious as to the nature of the author's business. If 
any attempt was made to find out the author told 
them that he was then hunting and never talked busi- 
ness while hunting. During these hunts and during the 
general conversation complete information relative to 
the men, their financial responsibility and character 
was obtained. 

On the 22nd day of December, the author made 
his start by first calling on one of the most influential 



90 NATIONAL INVESTORS GUIDE 

men of the community, who was at that time cashier 
of one of the local banks. The weather being very 
bad, and so near Christmas, the cashier told him that 
if he would wait until after Christmas and come and 
hunt with him for one week on his plantation, he 
would pledge himself to take a substantial block of 
stock and assist in getting up the proposed quota set 
by the author for that community. 

The author accepted this offer, went to Memphis 
to spend the holidays and returned to this town punc- 
tually on the day set, which was a Monday, closed with 
the cashier of the bank and left the following Friday 
night for Memphis with $18,000 of the community's 
money. 

Another illustration — while selling tire stock in 
Missouri the author dropped into a county seat which 
had a population of about 3,000. After supper he 
engaged the proprietor of the hotel in conversation 
and made the following inquiries: Who is president 
of the First National Bank? Who is prosecuting 
attorney? Who are the physicians? Who has the 
largest practice? Who is county treasurer? Who is 
probate judge? Who are your hardware merchants? 
Who runs general stores? In each instance he 
inquired as to the kind of car they drove. 

After obtaining a list of about 35 names, the next 
step was to find out who the men were with the most 
influence. The author selected two or three men of 
prominence, and called on no more until two of them 
had been closed, which took about three days. The 
next day about fifteen more stockholders had been 
added. These latter sales were made easy because 
the men who had bought were good, shrewd, clever 
business men. 

A professional stock salesman rarely is a stock- 
holder in the company he represents. However, he 
tells the prospective buyer that he has a substantial 
block of stock. He has an understanding with the per- 
sonnel of the company that if an inquiry is made as 
to how much he holds to answer that he has con- 
tracted for a stated amount. 



NATIONAL INVESTORS GUIDE 91 

The professional stock salesman also disguises his 
profession by impressing on the prospective purchaser 
that he is not solely interested in the sale of stock, 
but that he has a greater interest in the company. First 
to make his own investments good, and second he 
expects to hold some responsible position with the 
company after it is financed. 

The successful stock salesman endeavors to place 
himself on a level with those he wishes to sell by 
making himself known in a social way before attempt- 
ing to do any business or letting his business be known. 

He is a man who is usually well educated, 
resourceful, tactful and can travel in any class and 
talk on any subject. If he expects to interest a class 
who drive high-pricel motor cars, wear silk shirts and 
are club devotees, he will soon worm his way in and 
become a social visitor at the club. 

If he is working farmers, he will put the Packard 
in the garage, do his driving in a small, inexpensive 
car, and will probably do away with the boiled shirt. 
He does this because he does not wish to appear too 
prosperous in the eyes of the farmer. 

We have another class of stock salesman who is 
known as the lazy, high pressure man. He is also 
known as a reloader. 

For illustration, suppose a company is incorpor- 
ating for $1,000,000 and has sold about $500,000 
to approximately 2,000 stockholders. The company 
will first get out a general letter to all stockholders, 
stating that the issue of stock is being closed and the 
unsold portion has been pro-rated among the present 
stockholders. They are to be allowed the first privi- 
lege to increase their holdings, and reservation blank 
is enclosed for this purpose. 

The company knows that when this letter and 
blank is sent out that very few if any will be returned, 
but it has served its purpose by making an opening 
for the professional reloading stock salesman. 

The psychological moment has now arrived and a 
thorough canvass of the stockholders is made. The 



92 NATIONAL INVESTORS GUIDE 

salesman makes it appear to the stockholder that 
his last opportunity is at hand, and with his high 
pressure methods accomplishes his purpose — sells the 
stock. 

The professional stock salesman always has the 
advantage of the prospective purchaser, no matter 
what the argument may be. There are no reasons or 
obstacles that cannot be overcome or arranged satis- 
factorily by the stock salesman. 



NATIONAL INVESTORS GUIDE 93 



Argument Generally Used by the Professional 
Stock Salesman 

Usually the stock salesman's presentation is so 
made that very few questions can be asked after he 
is through with his canvass. He has answered them 
in advance. 

For illustration, in opening his selling talk, he gives 
a prospective purchaser a logical reason for calling on 
him. Here are some of the usual questions and 
answers that arise: 

Mr. Stock Salesman, if your proposition is so good 
why do you come to me for an investment? 

Mr. Prospective Buyer, I have already explained 
to you our reason for desiring to interest you. Your 
influence in this community is well known to us, and 
it is this influence and co-operation that we are seeking, 
not your money. There are hundreds of people among 
our clientele who know the value of our security and 
who would only be too glad to have the opportunity 
that we are extending to you. 

Our plan, as you can see, is a very good one, 
because we are creating a market for our product 
while we are financing. Mr. Prospect, if you will only 
use good reasoning you will understand how valuable 
our plan of financing will be to the company, and I 
can assure you that if it were not for the value we 
place on your influence we would not offer you this 
opportunity to buy our stock. As far as I am person- 
ally concerned, it is immaterial whether you buy or 
not. I can only present our proposition as it is and you 
must be the judge. 

Mr. Stock Salesman, your proposition sounds 
mighty good to me, but I am not in a position at this 
time to handle it. However, I may be able to do so 
later on. 

Mr. Prospect, if you are not in position to buy, 
someone has certainly misrepresented you to us 



94 NATIONAL INVESTORS GUIDE 

because we were given to understand that if our propo- 
sition appealed to you, you could buy it. Further- 
more, if I should run across a man who admitted that 
he had ready money to invest, I believe I would throw 
a fit. I have sold quite a number who have made the 
same statement but found it to their advantage to 
arrange a way to make the purchase before I had left 
them. As far as the money is concerned, Mr. Prospect, 
we do not want it all now. We could not use it if we 
had it, so we are only asking as first payment an 
amount sufficient to cover our present requirements. 

Our terms are as follows: one- third cash and the 
balance in equal payments of two, four, six and eight 
months, without interest, if you desire. The remainder 
can be paid in one payment if more convenient to 
you. Furthermore, Mr. Prospect, if you haven't the 
ready cash on hand, I would be glad to accommodate 
you by carrying personally the first payment for thirty 
days and will charge you no interest. 

Mr. Stock Salesman, I do not like to buy anything 
that I cannot pay for in full. 

Mr. Prospect, you may not believe it, but if we 
were obliged to finance our company by approaching 
only those who had ready cash to invest, v/e would 
never be able to finance it. It is a well known fact 
that a good business man, and you are not so much 
different from any other business man, usually keeps 
his money working and seldom ever has any more cash 
on hand than is necessary for immediate wants. Most 
every man I have called on has taken advantage of 
our terms, inasmuch as they have no interest to pay. 
You can anticipate what will be available to you in 
the near future and buy accordingly. You know as 
well as I do that 90% of the business of this country 
is done on credit. 

Mr. Stock Salesman, how much did Mr. Brown 
buy? 

Mr. Prospect, it would be a breach of confidence 
if I should tell you, for he would not want you to 
govern your purchase by his. Furthermore, I am quite 



NATIONAL INVESTORS GUIDE 95 

sure that you would not care to have me publish pro- 
miscuously your private business — this transaction is 
your own individual affair. 

Mr. Stock Salesman, I have bought stock before, 
and I have never yet received anything from my 
investments. This stock included some oil and motor 
stock that looked just as promising as your propo- 
sition. Therefore, I made a resolution that I would 
never buy any more. You know a burned child 
dreads the fire. 

Mr. Prospect, show me the business, professional 
man or farmer who has gone through life without ex- 
periencing a loss, and I will show you a man who never 
made a dollar. Furthermore, show me a man who 
started in with nothing but honesty and a willingness 
to work, and who did not use his own good judgment 
and credit, that every made anything. 

Mr. Lawyer, I will answer your question by asking 
you one. Did you ever take a case where you lost 
your fee? Of course you have, but you did not quit 
your practice. 

Mr. Doctor, did you ever lose a case? Did you 
ever lose your fee? If you had quit your practice be- 
cause you lost a case or lost a fee you would not be a 
doctor today. 

Mr. Business Man, did you ever buy a bill of shoes 
that could not be sold and which you had to sacrifice 
at a loss? You did not quit buying shoes on this ac- 
count, did you? 

Mr. Farmer, has every year that you have worked 
this farm proved profitable to you? I know as well 
as you that if a farmer would quit the farm because he 
made a loss in any one year we would not have a 
farmer in the United States today. 

So Mr. Prospective Buyer, no matter who you are, 
if you have suffered a loss and sat down, mourned, 
cried and worried about it, and made no effort to re- 
coup this loss, it certainly would always remain a loss. 
Mr. Prospect, no matter in what line of business or 



96 NATIONAL INVESTORS GUIDE 

profession one isengaged, where one uses good judg- 
ment and is conservative, the law of averages is bound 
to prevail. 

Mr. Prospect, no matter in what occupation you 
are engaged, be it business, professional man or farmer, 
the profit and loss is reckoned at the end of the year 
on the general volume of business and not on individual 
transactions. 

Mr. Prospect, I am quite sure, and I know that you 
feel as I do, that I am offering you a safe, permanent 
investment. It is not one that will make you rich over 
night, but will grow in value and pay you in dividends 
more than the legal rate of interest. 

Mr. Stock Salesman, I know this business and have 
succeeded in it, but I am not familiar with outside op- 
portunities. 

Mr. Prospect, you are capable of reading and un- 
derstanding, aren't you? You are well aware that 
there are other opportunities to make more money 
than the business you are now in. Furthermore, it is 
such men as you and opportunities of this kind that 
build our industries, increase the value of real estate, 
make living conditions better, etc. Consequently, 
you as a prominent business, professional man or 
farmer cannot afford to overlook this opportunity. 

Mr. Stock Salesman, I know how all these compan- 
ies turn out; the big fish eat up the little ones. I could 
only buy a small amount of your stock, and would 
have nothing to say regarding the management of the 
company. 

Mr. Prospect, this is an erroneous statement, and 
is certainly an old worn out saying. I have heard it 
ever since I was a small boy, and nearly every man I 
call on makes the same remark. Allow me to ask you 
how many times have you been eaten up by the big 
fish? 

This statement is usually made where a business 
does not succeed, but the failure of such companies 
cannot be attributed to the big fish eating up the little 
ones. 



NATIONAL INVESTORS GUIDE 97 

There are a great many elements entering into a 
proposition that make it profitable. One of the main 
things is sufficient capital. No matter how good the 
proposition is if insufficiently financed it will eventually 
starve to death. There may be other reasons beyond 
human control that will cause a business to fail, but 
this cannot be attributed to big fish eating up the little 
ones. There may be isolated cases where minority 
stockholders are taken advantage of, but they are few 
and far between. 

Mr. Prospect, if you wish to become financially 
interested in our company, and are not in position to 
handle the maximum $5,000, I would suggest that you 
take what you can handle without embarrassment in 
case your plans do not mature as anticipated. 

One nice feature of this proposition is that you do 
not have to make a heavy investment to make it 
amount to something. These figures I am showing you 
are of companies who started in under less favorable 
circumstances than we are starting, and if our invest- 
ment proves to be one-fourth as good as we have every 
right and reason to believe, you will have made a 
splendid investment. 

In operating your business, you do not put all your 
money into one particular line. 

Mr. Shoeman, you do not buy exclusively from one 
factory and sell all your shoes at the same price. 

Mr. Lawyer you do not confine yourself to one set 
of law books. 

Mr. Farmer, you do not place your entire acreage 
in corn ; you diversify it by putting in some corn, wheat, 
oats, rye, barley as a safeguard against complete fail- 
ure. 

This should be your guide in buying stocks. In- 
vest in only those companies which, in your judgment, 
are good and in amounts that in case the investment 
fails you will not be embarrassed. 

Mr. Prospect, look what other companies in simi- 
lar lines that started in with very small capital, have 
done. Now I am not promising you that we are going 



98 NATIONAL INVESTORS GUIDE 

to make such a record, although our opportunity is 
much greater now than when these companies started. 
With the valuable co-operation which we have secured 
by scattering our stock to the four winds, our success 
is assured. 

Mr Stock Salesman, your proposition sounds all 
right; I think I will take some. However, I want to 
talk it over with my wife, and probably with my 
banker. 

Mr. Prospect, if I am to depend on what your wife 
and banker has to say, I will not return to see you, 
because I know what their answers will be. First, you 
cannot make the proper explanation to your wife. You 
will simply go to her as most men do and say "there 
was a man here to-day selling stock in a double back 
action motor truck company. Do you think we had 
ought to take some?" 

Of course you understand, Mr. Prospect, I am not 
questioning your wife's judgment, but you do not ex- 
plain the proposition to her as I have explained it to 
you. Therefore, she is unable to give the matter proper 
consideration. 

As to your banker, I can tell you now that he is 
not going to advise you to buy this stock. In the first 
place, he does not know the men at the head of our 
concern. He does not know the nature of our proposi- 
tion, or what we are offering. If you are a customer of 
his bank, and carry money in his bank, he is going to 
protect the bank's interests by seeing that this deposit 
remains in the bank. Banks make their money by 
loaning the money of their depositors. 

If you will permit me, I would like to explain my 
proposition to your wife, so that she will be in a posi- 
tion to analyze and pass on it with the same informa- 
tion that you have. 

Mr. Stock Salesman, there will be no use of you 
talking to my wife. She would not understand it, and 
would tell you that she will leave this matter to me any- 
way. 



NATIONAL INVESTORS GUIDE 99 

Mr. Prospect now you said that you wanted to 
think it over. Do you mean that you want a day, a 
week, a month or a year. Our allotment in this 
neighborhood is limited, and I must know what you 
want to do. Now, if you can give me your answer 
tomorrow morning, say at 1 :00, I will be here. 

Mr. Stock Salesman, drop around about 10:00. 

Mr. Prospect, you can say that I am prompt and 
punctual; I am here at the appointed time. 

Mr. Stock Salesman, I see you are, but I have talked 
it over with my wife, thought the mater over carefully, 
and I do not believe that I will take any. 

Mr. Prospect, that is not good news. You seemed 
very much interested in our proposition when I was 
here yesterday, and I can assure you that it has not 
changed over night, and I do not think your circum- 
stances have either. I know what you want — if there 
are any other reasons why you should buy you want 
me to present them. 

Mr. Prospect, you no doubt overlooked the fact 
that while you may never need a grind stone or truck, 
in addition to your investment in the company, you 
will be saving 20 to 25% on your purchase. Further- 
more, if you hear of anyone who needs a grind stone 
or truck, as a stockholder in the company you will 
naturally suggest the use of articles in which you are 
financially interested. This word of mouth advertis- 
ing by you will be very valuable to the company. This 
is the co-operation we are seeking. In return this is 
what makes your investment in our company profitable 
to you. Can't you see it? 

Mr. Stock Salesman, yes, I can see it, but I do not 
see how I can spare the money. 

Mr. Prospect, why don't you do like all the others 
are doing? 

Mr. Doe, suposed to be one of the wealthiest men 
in your community, took advantage of our terms be- 
cause of the fact that money is money, and interest is 
interest; and so long as he could take advantage of the 



100 NATIONAL INVESTORS GUIDE 

company's terms and still have the use of his money 
he did so. 

As I told you yesterday, if it would be of any con- 
venience to you I personally will carry the first pay- 
ment, and I can assure you Mr. Prospect, that you will 
make only one mistake and that is in the amount you 
buy. You no doubt understand that after the stock 
begins to pay substantial dividends and increases in 
value, it will be hard to get. 

If you can show me any good logical reason why 
this company should not succeed, I will leave you now. 

Mr. Stock Salesman, I do not know that I can. 

Mr. Prospect, I know you cannot. Do you know 
of a business of a similar nature that has ever failed? 
If you do I would like to know about it because it 
would be news to me. For safety and permanency 
you cannot beat it, and you know it. 

Mr. Stock Salesman, what did you say your terms 
were? 

Mr. Prospect, you can pay all cash if you like, 
or as I explained to you yesterday if it will be of any 
help to you I will personally carry the first payment 
thirty days, and you can scatter the remaining pay- 
ments over a term of six months without interest, just 
so the money is in the hands of the company within 
six months. 

Mr. Stock Salesman, I will take $1,000 on your 
terms, that is if you will carry me for the first one- 
third for thirty days. 

Stock salesman proceeds to make out papers, fills 
out the application blank, draws up the various notes 
and the average investor never reads the application 
blank, and merely glances at the amounts of the notes. 

The professional stock salesman to clear his own 
skirts in case the company does not turn out well, takes 
what is known as "myself note." This is a note that 
is negotiable anywhere and cannot be identified with 
any particular purchase. Most banks who understand 
this note and are willing to buy paper, prefer it be- 



NATIONAL INVESTORS GUIDE 101- 

cause it loses its identity. This note is signed and en- 
dorsed by the purchaser. The professional stock 
salesman will then sell it at the first opportunity, and 
turn in the proceeds to the company, with the remain- 
ing settlement for the purchase. 

The following is a facisimile of a myself note: 

$ City State Date 1921 

after date promise to 

pay to the order of myself. 

Dollars 

at with interest at the rate of six percent 

per annum until paid. Value received. 



No D 



ue 



02 NATIONAL INVESTORS GUIDE 



GENERAL FORMS OF CONTRACTS MADE FOR 
PURCHASE OF STOCKS: 

The A. K. T. & R. Company will give a discount 
of 30% from retail prices to its stockholders on all 
tires and tubes purchased from said company. 

Stock Subscription 

No 

The Company reserves the right to reject all or any 
portion of this subscription 

W. B. COMPANY 

Fiscal Agents for the A. K. T. & R. Co. 

Authorized capital $3,000,000 — par value of shares 

$100 each— $2,000,000 common— $1,000,000 

preferred' — fully paid — non-assessable 

Stockholders Special Subscription 

General Offices Bldg. 

I hereby subscribe and agree to take 

common shares and preferred shares of the 

capital stock of the A. A. T. & R. Company, and agree 
to pay therefor $100 per share payable as follows: 
33 1-3 with this subscription and the remainder in in- 
stallments as follows: 

$ on 19. .. 

$ on 19. .. 

Stock to be issued only upon completion of pay- 
ment in full; deferred installments to be mailed to 
City offices of said Company. No agreement or stipu- 
lation other than those printed hereon shall be bind- 
ing upon the company, and no agent has the authority 
to waive, or modify this contract, nor to make repre- 
sentations or statements at variance with the printed 
literature issued by the company. Upon default of the 



NATIONAL INVESTORS GUIDE 103 

purchaser, it is agreed that the company shall retain 
the payments as liquidated damages. 

Name 

Address 

Street No 

Witness 

Make all checks payable to the A. K. T. & R. Co. 

Selected Subscription 

Authorized Capital $500,000 Par value per share $ 1 00 

A. B. & C. CO. 

OF U. S. A. 

No B Amount $ 

I hereby subscribe for shares of the 

capital stock of the A. B. & C. Company, and agree 
to pay therefor $200.00 per share as follows: Fifty 
Dollars ($50.00) in cash on each share with this sub- 
scription, and the balance, which shall include the full 
par value or capital portion and the paid-in surplus, 

1917. 

As soon as said payments have been completed in 
cash, a certificate therefore is to be issued to me by 
said company, showing said stock is fully paid and 
non-assessable. 

It is understood and agreed that should I fail or 
refuse to complete the payments provided for in this 
subscription, the amount paid hereon shall be forfeited 
to the company as liquidated damages. 

This subscription is made subject to increase in 
price or prior sale, in either of which events the amount 
paid hereon will be returned by the company. 

In case I desire to sell at any time all or any part 
of my stock, I agree to notify the company of such 
intention. 



104 NATIONAL INVESTORS GUIDE 

Make all drafts, checks or money orders payable to 
the order of the company. 

It is understood and agreed that no conditions or 
agreements other than printed herein shall be binding 
on the company. 

Dated and signed this day of 

19 



Subscriber 
P. O. Address Occupation 

RECEIPT 

No. 646B Date 19. .. 

A. B. & C. Company 

Amount $ 

Received of 

Dollars, cash, 

and notes of even date for dollars 

in payment for shares of Capital 

Stock of the above company. In case this subscription 
is not accepted, the consideration received by the 
company will be refunded. 

This receipt will not be valid or binding on the 
company if any conditions are added to those printed 
on the face hereof, or on the face of the subscription. 

Countersigned by A. B. & C. 

Company. Agent 

I wish to call your attention to the paragraph in 
which it states "it is understood and agreed that no 
conditions and agreements other than those printed 
hereon shall be binding on the company." This is to 
protect the company against any verbal statements 
that may have been made by the professional stock 
salesman. 

You will notice that on all subscriptions provision 
is made that all checks or drafts must be made payable 



NATIONAL INVESTORS GUIDE 105 

to the company. Where a purchaser does not comply 
with these requirements, and makes a note or check 
payable to the stock salesman, the stock salesman can 
negotiate the same and appropriate the monies for his 
own use. This would only be a breach of trust. 

On page 1 04 you will note in the subscription of 
the A. B. & C. Company this paragraph: 

"In case I desire to sell at any time, all or any part 
of my stock, I agree to notify the company of such 
intentions.'' There is no meaning to this paragraph 
excepting to make the purchaser feel that there is al- 
ways a market for the stock. 

On page 104 in the same subscription, you will 
notice a paragraph which reads as follows: "I hereby 
subscribe for blank shares of the capital stock of the 
A. B. & C. Company and agree to pay therefor $200 
per share as follows: $50 in cash on each share with 
this subscription and the balance which shall include 
the full par value or capital portion and the paid-in 
surplus 191 7." 

This paragraph is very innocent looking, but when 
you analyze it it reads as follows: "And agree to pay 
therefor $200 per share. I understand when I pay 
$50 on each share with this subscription that this is a 
portion of the surplus and does not include any of the 
capital portion of the stock. I have not bought any 
stock until I have paid the balance which includes the 
capital portion and the remainder of paid-in-surplus." 

On page 1 04 in the subscription of the A. B. & C. 
Company there is another paragraph which has been 
held by supreme courts as invalid. This paragraph 
reads as follows: "It is understood and agreed that 
should I fail or refuse to complete the payments pro- 
vided in this subscription, the amount paid hereon 
shall be forfeited to the company as liquidated dam- 
ages." 

Very few stock salesmen unless asked, state the 
par value of the stock they are offering. They usually 
quote it per share. As you will note in the subscrip- 
tion on page 1 04, the subscription states at the top that 



106 NATIONAL INVESTORS GUIDE 

the par value is $100 per share, but is being sold for 
$200 per share, thus the purchaser is paying two for 
one. The average purchaser of stocks is not aware 
that dividends are only paid on the par value. For 
illustration we will suppose that this company declares 
a dividend of 10%. This 10% is paid on $100 par 
or $10 which is 5% on the amount of $200 paid for 
the stock. 

You will note in the subscription on page 102 that 
this subscription provides for both preferred and com- 
mon stock. $2,000,000 common stock, par value 
$100, $1,000,000 preferred stock, par value $100, 
fully paid and non-assessable. This subscription does 
not state whether the common or preferred or both 
vote, nor does it state what interest the preferred pays. 
Preferred stock certificates usually provide that the 
stock draws 7% accumulative, payable annually or 
semi-annually. 

All preferred stock drawing a stipulated rate of 
interest must bear the word "accumulative," for our 
laws provide that no stock can pay an interest or divi- 
dend that is not earned. For illustration, a company 
finds that its earnings are not sufficient to pay the 
stipulated interest on the preferred stock. This can 
be carried over until the next year, and accumulated 
with any other interest payments deferred until such 
time as the company's earnings can pay it all or any 
part of same. But in all cases the company must have 
earned it before they can pay it. If the company 
should declare and pay such an interest earning, and 
it can be proven that it was not earned, the officers of 
the company will have laid themselves criminally 
liable. 

Referring ^again to the subscription on page 1 02, 
where the company was issuing both preferred and 
common stock, our corporation laws provide that all 
preferred issued comes first as to payment of stipulated 
interest, and the remainder of the earnings, if any, 
shall go to the common. 

Our Corporation laws further provide that in case 
of liquidation all preferred stock and unpaid interest 



NATIONAL INVESTORS GUIDE 107 

outstanding must be paid in full or its pro-rata share 
of the assets before the common can participate. Pre- 
ferred does not participate beyond the stipulated in- 
terest provided for in the stock subscription. The 
common receives and is credited with all earnings over 
and above the amount of interest provided for in the 
preferred shares. 

Our corporation laws are changing constantly, but 
in some states it is provided that both the shares of 
preferred and common shall vote, before a permit will 
be issued to sell the stock. However, but few com- 
panies allow the preferred stockholder to vote unless 
compelled to do so. The voting powers of the com- 
pany are usually held by the common stockholders. 

When a purchaser gives a stock salesman an appli- 
cation of stock, suppose he pays for it in full by check, 
or the required amount as part payment by check or 
note. After the contract is completed the stock sales- 
man beats it to the bank as fast as his legs will carry 
him and gets the check certified or switched into ex- 
change. If a note, convert it into cashier's check or 
exchange before anything else is done. This is done 
to protect the sale, and assure the stock salesman his 
commission. 

A great many times where a sale is made under 
high pressure, as soon as the purchaser realizes what 
he has done, wishes to cancel same. He immediately 
tries to stop payment on his. check or prevent his note 
from being negotiated, but invariably finds that he is 
just too late. His check or note has already been 
negotiated. 

If the purchase is of considerable amount, and the 
check is drawn on a bank 1 00 miles away or the note 
is only negotiable at a certain place considerable dis- 
tance, the stock salesman will immediately cover the 
distance by auto or train, negotiate the check or note 
to clinch the sale. These conditions have been brought 
about by the rural telephone for it is so easy for the 
purchaser to call up his bank on the telephone and 



108 NATIONAL INVESTORS GUIDE 

ask for payment to be stopped on his check or request 
that they do not buy his notes. 

The average purchaser does not know the differ- 
ence between book value, and market value of stocks. 
The market value of a stock may be determined on the 
past record of the company, based on the stock book 
value, and dividends that have been paid; also the fu- 
ture prospects of the company. For illustration, a 
company may start in with a capital of $100,000, par 
value $ 1 00. This company may continue for three 
years and during this time pay no dividends, but will 
have voted its earnings to the account of surplus and 
undivided profits, amounting to $200. Thus the com- 
pany will have assets that could be liquidated for 
$300,000. Therefore, the company has a book value 
of $300 per share, and a greater earning value be- 
cause it has $300,000 working against $100,000 when 
it started. 

Another illustration — market values' are usually 
based on a 5% per annum average earning. Where a 
company starts with a $100,000 capital and earns 
$25,000 per annum, which is paid out in dividends, 
and prospects are good for a continuance of such earn- 
ings, it may make the market value of this stock $500 
per share. For twenty-five percent on one hundred is 
equal to 5% on five hundred. 

In the application printed below, you will note that 
the par value of the stock is $50 per share. When 
this application was printed the company was 8 years 
old and had paid three consecutive dividends of 10%, 
12 J/2% and 15J/2% per annum. In addition to this 
they had accummulated sufficient assets over and above 
the amount paid out in dividends to make the book 
value of this stock $207.00 per share. 

In the event this application cannot be filled, the 
right is reserved to reject the same or make a pro rata 
allotment, in which event check will be returned. 



NATIONAL INVESTORS GUIDE 109 

APPLICATION AND AGREEMENT 

To purchase shares in the 
N. A. L. INSURANCE COMPANY 

I hereby apply for shares of N. A. 

L. I. Co., capital stock with accrued dividends, and 
agree to pay two hundred and seven dollars per share 

for same, payment to be made as follows: 

cash in four months from date, and 

in eight months from date. Certifi- 
cate for said shares to be delivered by W. P. K. to 
subscriber when the stock has been fully paid. Par 
value fifty dollars. Capital $700,000. 

This application is not subject to countermand and 
no conditions, agreements or representations either 
written or verbal, other than those printed herein shall 
be binding on W. P. K. and in the event this subscrip- 
tion is accejpted and I shall fail to complete this agree- 
ment, I hereby assign all of my rights, title and inter- 
est of and to the capital stock for which this subscrip- 
tion is made, to W. K. P., trustee, as collateral security 
for the deferred payments thereon. 

Fully paid and non-assessable. 

Make all checks payable to W. P. K. 

Witness my hand and seal, this 

day of , 19 

Name 

Accepted Occupation 

Address 



Witness 

You will note that in all subscription blanks they 
have the words "fully paid" and "non-assessable.'* 
This provision is made to protect the stockholder 
which means that he is only liable for the amount he 



110 NATIONAL INVESTORS GUIDE 

has paid in or the par value of the stock. If this pro- 
vision was not made, and the company should need 
more capital they would be privileged under the law 
to assess each stockholder his pro-rata share of any 
amount that might be deemed necessary for the com- 
pany. 

After a purchaser has paid in full for his stock there 
can be no further claim against him for the liabilities 
of the company. In some states our banking laws 
provide that all directors of the bank are liable to the 
extent of the liabilities of the bank. 



NATIONAL INVESTORS GUIDE 111 



Advice To Investors 

Whether you are a business, professional man or 
farmer, if you have succeeded you had better confine 
your efforts to these things. The only outside invest- 
ments that you should at all be interested in are those 
that would add to the betterment or welfare of the 
local community. 

The moment you invest in an enterprise with which 
you are not familiar, and which is controlled by other 
men that moment your investment becomes hazardous. 

If you feel that you must invest, and that you have 
reached the limits of possibilities in the business in 
which you are engaged, confine your investments to 
propositions that you thoroughly understand, know 
their value, etc. 

No matter where you are located, opportunities 
will present themselves. The trouble with most of us 
is that we are continually seeking opportunities in un- 
explored fields. This is why so much money is lost by 
the investing public. 

One of the greatest troubles is that we are not 
satisfied with what we are doing, and as soon as we 
begin to accumulate we try to satisfy our aspirations 
to become strong socially, and to accumulate great 
wealth. 

If you must invest in outside propositions, make 

sure that you know what you are doing. It would be 

well for all investors to apply Missouri's slogan "show 

» » 
me. 

Do not let friendship influence you when investing 
your money in stock for sometimes this is used for sel- 
fish purposes, and again through innocence. Remem- 
ber that you are the best guardian of your own money, 
and you alone are responsible for your investment in 
safe, sound stocks that are profitable. 

So long as you have money you will always have 
friends; when your money is gone your friends will 
usually depart. 



112 NATIONAL INVESTORS GUIDE 

The general public will favor you, flatter you and 
support you in your undertaking so long as you are 
successful. Let adversity overtake you and your posi- 
tion will be reversed. 

When investing in any other than a business you 
know thoroughly and control, do not mortgage the 
future. If you cannot pay for it in full, you had bet- 
ter pass it up. 

Do not give any notes or make any obligations for 
stock. When you conclude a contract or purchase, be 
sure that you want it before you sign up. There is 
practically no recourse after you have signed up. 
When a proposition is presented study it over care- 
fully and analyze it. Do not invest unless in your own 
judgment the proposition is feasible and profitable. 

If the company is promoting oil or mining leases, 
be sure that these leases are bona fide and title clear. 
Also be sure that the values are not inflated, and too 
much stock given for them by the company. 

If it is an enterprise where there has been any 
free stock given for services or for anything else, you 
want to know why and the amount and to whom issued. 
If it is a patent you want to know that it is a basic 
patent, mechanically perfect and foolproof, and prac- 
tical for the purpose intended. Furthermore you 
want to know that these patents are not being put into 
the company at a fictitious value. 

Consider all estimates made as guess work. Esti- 
mates in stock selling are first made for the purpose 
of selling stock. The real figures come after the com- 
pany has commenced to operate. 

Be sure of the personnel of the company; that the 
management is clean, good and capable of managing 
the affairs of the company in the best possible manner. 

If letters of endorsement are submitted to you, 
read them over carefully and if possible read between 
the lines. These letters are usually couched in such 
terms as will influence the sale of stock, but in reality 
are meaningless. Be sure you know whether the com- 
pany is a corporation or a declaration of trust. In- 



NATIONAL INVESTORS GUIDE 113 

sist on knowing under what state laws the company is 
incorporated. 

Be sure and find out the amount of capital 
authorized by the company, whether preferred, com- 
mon or no par value, or certificate of shares. Find out 
how much, if any, of the stock has been given for 
reasons mentioned above and to what extent. 

You should also know the classification of the stock 
offered, whether preferred is classified in first, second 
or third liens. Likewise the common. You should 
know what part of the issue has the voting power. 

Ascertain the probable cost of production, over- 
head, etc., and the selling price. Do your own figur- 
ing; do not let others figure for you. Do not be in any 
hurry in buying stocks. Take your own time. Con- 
sider the proposition carefully. Do not be induced to 
sign up hurriedly. A proposition that won't keep over 
night won't stand investigation. A proposition that 
won't stand investigation and consideration is like 
perishable fruit — won't keep. 

Do not be influenced by the statement that there 
is to be an immediate advance. When stock advances 
there should be good, sound, logical reasons for it. 

Some stocks are advanced fictitiously with no rea- 
sonable basis warranting such an advance. These ad- 
vances are sometimes made for the purpose of selling 
stock. 

Sometimes it is insinuated that advances in the 
prices are to be made immediately which never occur. 
When you buy stock be sure and read the contract 
carefully. Be sure that you understand same. If you 
do not understand, do not sign it. Do not take the 
other fellow's word for anything. 

When making your purchase be sure that you com- 
ply with all the terms of the contract, sign no notes or 
checks that are not made payable to the company, 
and on local banks. Be sure and avoid a "myself 
note," for the minute it is given it loses its identity, and 
is negotiable anywhere. 



114 NATIONAL INVESTORS GUIDE 

Do not be deceived into believing that you are 
necessary to a company that is a clean cut proposition. 
Do not be deceived into believing that you are being 
favored merely for influence and co-operation. A 
good proposition properly financed and properly 
managed does not have to capitalize co-operation. 
With money they can buy it, or rather create a market 
for their product. Do not be flattered or vain enough 
to believe that you are being especially favored. This 
is only practiced to obtain your subscription. 

In some communities an investor -will fall for a 
proposition, and he feels it a part of his duty to see 
that others are interested so that in case of failure he 
will not be the only sucker. Very rarely is there any- 
thing to give away — good things have a value. 

Unless you can buy enough to warrant you to at- 
tend all meetings of the stockholders, you had better 
stay out. Do not send your proxy; go in person. 
Then you will know how your stock is being voted. 

It is customary in sending out notice of an annual 
stockholders meeting, if the stockholder cannot be 
present, to mail in a proxy, giving one of the officers 
authority to vote the stock. In this way a few officers 
can control the meeting and carry out any plans they 
may have in mind, whether to the benefit of the com- 
pany or not. Of course, it is understood there must 
be enough stock voting to constitute a quorum or it 
would not be legal. 

Insist on having a financial statement. A company 
can furnish one whether it be one day, one month, one 
year or 1 00 years old. If possible, be sure that the 
financial statement has been made by certified audi- 
tors. In any event be sure that it is made by the proper 
officers and acknowledged before a notary public. 

If you do not understand a financial statement 
when it is submitted to you, take it to your banker, and 
let him analyze it for you. Under no circumstances 
should you invest unless a financial statement is ren- 
dered under the conditions above stated. 



NATIONAL INVESTORS GUIDE 115 

A plain financial statement sometimes is of no 
value in passing on a proposition. A statement that 
will give you the information you should have is an 
itemized one covering the assets of the company, what 
they are and the appraised value, operating costs, 
overhead, selling costs, gross income, etc. 

Deferred assets, as a rule, is the term used to cover 
a deficit such as cost of organization. All these things 
must be taken into consideration when investing. Re- 
member there are a great many elements of risk enter- 
ing into a public investing proposition before a divi- 
dend can be paid. Some of them are over capitali- 
zation, inflated values, insufficient capital, poor man- 
agement, etc. Investing is not boy's play and requires 
good sound logical conservative judgment. 

If you had to have a tooth pulled, you would not 
go to a blacksmith. If you wanted insurance you 
would not go to an undertaker. If you needed a phy- 
sician you would not go to a cobbler. If you required 
a blacksmith you would not consult a sign painter. A 
great many times the management of a company is 
invested in men who are as much out of place as a pig 
in a church. 

Remember that in all states an organizing com- 
pany must have both a permit and license before they 
are privileged to sell stock. Remember that the offi- 
cers of the company or the salesmen who offer you 
stock without submitting a license are criminally liable. 
Do not forget that this license is not an endorsement 
of the solidity, safety or value of the investment. It 
is simply a privilege to sell it. 

Do not forget that this license contains the fol- 
lowing paragraph "this department does not recom- 
mend the purchase of this security." You must be 
your own judge. Keep in mind that there is no mar- 
ket for organizing securities; the market is being 
created as it is being sold, and the price is usually 
arbitrarily set. 

Remember that your investment in an organizing 
company shrinks immediately after you have signed 



116 NATIONAL INVESTORS GUIDE 

the subscription, because the cost of organization must 
be deducted, unless the company is an operating one 
and operating at a profit. Keep in mind that the pro- 
fessional stock salesman has the better of the argument. 
He knows his proposition — you do not. 

Dividends, if any, are paid on the par value of the 
common and preferred stock on so much per share on 
no par value stock, not on the price you pay for it. 
A script dividend is not a dividend until it has been 
paid. A script dividend is simply evidence that a 
dividend has been declared. While it becomes a 
liability against the company, at the same time pay- 
ment may be carried on indefinitely. 

When you buy a piece of real estate, you do not 
part with your money until you have secured an ab- 
stract of title, had same examined and found that it is 
clear. This same rule should be observed when buy- 
ing stock. 

If you are the owner of stock do not give a pro- 
moter or stock salesman a power of attorney to sell 
same unless you want to sell. 

Remember the stock salesman tells you only the 
things that he knows will interest you, while the others 
you should know he carefully omits. 

Probably you have made a good resolution never 
to buy any more stock. As a rule good resolutions are 
made to be broken, and pretty soon you will find this 
resolve slipping. Then if you do not look out you will 
be taken in. 

Do not flatter yourself into believing that you are 
too wise or that you know it all — you can always learn 
something. So long as it is generally known that you 
have prospered or are prospering, you will be solicited 
to buy stock. 

You buy fire insurance to protect your buildings. 
You buy life insurance to protect your family. You 
buy the services of a physician when you are sick. You 



NATIONAL INVESTORS GUIDE 117 

buy the services of a lawyer when you need legal ad- 
vice. If there is any doubt in your mind as to the 
safety or future prospects of an organizing company, 
do not fail to take advantage of your opportunity as a 
subscriber to get a report from the National Investors 
Service Bureau, the only service of its kind in the 
world. 



118 NATIONAL INVESTORS GUIDE 

Forms Showing Negotiable Instruments, Privileges and 

Legal Points, with Reference to Purchase 

and Sale of Stock 

The words most frequently employed to indicate 
the negotiability of an instrument are the words "to 
order," "or bearer," but any words from which it can 
be inferred that the maker intended the instrument 
to be negotiable will have that effect. 

The essential elements of a negotiable instrument 
are as follows: 

1 . It must be in writing, and signed by the maker 
or drawer. 

2. It must contain an unconditional promise or 
order to pay a certain sum in money. 

3. It must be payable on demand or at a fixed 
or determined future time. 

4. It must be payable to order or to bearer. 

5. Where the instrument is addressed to a drawee, 
he must be named or otherwise indicated with reason- 
able certainty. 

6. The parties to a negotiable instrument must 
be competent to enter into a contract. 

7. A negotiable instrument must be founded on 
a valid consideration. 

8. Actual delivery must be made to give effect to 
the instrument. 

An Endorser or Endorsers 

Endorsers on a negotiable instrument are liable in 
the order in which they endorse. Each endorser prom- 
ises every subsequent holder of the bill or note that 
they shall suffer no loss by reason of the default of 
the principal debtor. 

Rights of the Holder in General 

The holder of a negotiable instrument may recover 
the amount payable thereon in his own name, and pay- 



NATIONAL INVESTORS GUIDE 119 

ment to him in due course discharges the instrument. 
In any discussion of negotiable instrument, the phrase 
"a holder in due course" is frequently employed. Let 
us inquire, therefore, who is a holder in due course. 

A holder in due course is one who obtains pos- 
session of an instrument under the following condi- 
tions: 

1. That it is complete and regular upon its face; 

2. That he became the holder of it before it was 
overdue, and without notice that it had been previously 
dishonored; 

3. That he took it in good faith and for value; and 

4. That at the time it was negotiated to him he 
had no notice of any infirmity in the instrument or de- 
fect in the title of the person negotiating it. 

It will also be noted that where an instrument pay- 
able on demand is negotiated an unreasonable length 
of time after its issue the holder is not deemed a holder 
in due course. 

The title of a negotiable instrument is defective 
within the meaning of the law if the person who nego- 
tiates it obtained the instrument or any signature there- 
to by fraud, duress or force, or other unlawful means, 
or for any illegal consideration, or when he negotiates 
it in breach of faith or under such circumstances as 
amount to a fraud. 

A holder in due course of a negotiable instrument 
holds the same free from any defect of title in prior 
parties and free from such defenses as are available, to 
prior parties among themselves. Such a holder in 
due course may enforce payment of the instrument 
for the full amount thereof against any and all parties 
liable thereon. 

The law further specifies that a negotiable instru- 
ment in the hands of any holder other than one not 
in due course is subject to the same defenses as a non- 
negotiable instrument. The law presumes that every 
holder of a negotiable instrument is a holder in due 
course. 



120 NATIONAL INVESTORS GUIDE 



Promissory Note 

$ Detroit, Mich, July, 1 , 1 92 . . 

after date, for value received, 

I promise to pay to the order of 

Dollars, 

at , with interest at 

% per annum. 



Judgment Note 

$ Detroit, Mich., July 1, 192. . 

after date, for value received, 

I (we) promise to pay to the order of 

Dollars, 

at , with interest at 

% per annum. And I (we) jointly and sev- 
erally, hereby authorize, irrevocably, any attorney of 
any court of record, if this note is not paid at maturity, 
to appear for me (us) in such court, in term or vaca- 
tion, at any time hereafter, and confess a judgment, 
without process, in favor of the holder of this note, for 
such amount as may appear to be unpaid thereon, 
together with costs and reasonable attorney's fees, and 
to waive and release all errors which may intervene 
in any such proceedings, and consent to immediate 
execution upon such judgment, hereby ratifying and 
confirming all that my (our) said attorney may do by 
virture hereof. 

Witness: (L.S.) 



NATIONAL INVESTORS GUIDE 121 

Collateral Note 

$ Detroit, Mich., July 1, 192. . 

after date, for value received, 

I promise to pay to the order of . . . 

Dollars, 

at , with interest at 

% per annum, and as collateral security for 

the payment of said principal and interest transferred, 

pledged and delivered to said payee 

and hereby irrevocably authorize said payee or the 
legal holder hereof to sell the same at public or pri- 
vate sale and apply the proceeds thereof, after deduct- 
ing all costs, attorneys' fees and expenses, toward such 
payment, with the right to said payee or holder to 
purchase at such public sale, any overplus to be de- 
livered to me and any deficiency to be paid by me 
forthwith upon demand. 



Power of Attorney 

Power of attorney is the legal relation existing 
where one person represents another in business deal- 
ings with third persons. Should be acknowledged and 
recorded whenever required for instrument agent is 
to execute. 

Know all men by these presents that I, 

of , have made, 

constituted, and appointed, and by these presents do 

make, constitute, and appoint 

of my true and lawful at- 
torney for me and in my name, place, and stead to 
(set out fully what is to be done by the attorney) ; 
giving and granting unto my said attorney full power 
and authority to do and perform all and every act 
and thing whatsoever requisite and necessary to be 
done in and about the premises, as fully to all intents 
and purposes, as I might or could do if personally 
present, with full power of substitution and revocation, 



122 NATIONAL INVESTORS GUIDE 

hereby ratifying and confirming all that my said attor- 
ney or his substitute shall lawfully do or cause to be 
done by virture hereof. 

In witness whereof, I have hereunto set my hand 
and seal this tenth day of December in the year one 
thousand nine hundred and twenty-one. 

(L.S.) 

Executed and delivered in 
the presence of 



A proxy is a special power of attorney. It is limit- 
ed strictly to the powers specified. Is terminated by 
death of maker, sale of stock for which given, or formal 
revocation filed with the secretary of the corporation. 
Maker's presence and participation at meeting, is incon- 
sistent with terms of the proxy, will revoke it. It is re- 
vocable, though made "irrevocably," unless coupled 
with an interest as where given with pledge of stock. 
If given for a certain meeting, it is good for any 
adjournment thereof, whether so stated or not. Name 
of proxy may be left blank, to be inserted after sig- 
nature; when inserted, or can be used by person named, 
unless power of substitution is conferred. 

Directors cannot give proxies for directors' meet- 
ings, as their office is one of trust and cannot be dele- 
gated. 

Proxies used are filed with the secretary, or original 
is exhibited and certified or sworn copy filed. 

Need not be witnessed or acknowledged unless re- 
quired by statute, charter or by-law, which may also 
limit time for which valid. 



NATIONAL INVESTORS GUIDE 123 



Proxy 

I hereby appoint my 

proxy, with full authority to vote for me and in my 
place at any and all stockholders' meetings of the 

Witness my hand and seal this fourth day of 
November, 192. . . 

(US.) 

Witness : 



Revocation of Proxy or Power of Attorney 

Know All Men by These Presents: 

That I, the undersigned, do hereby revoke and 
annul any and all proxies (or powers of attorney) here- 
inbefore given by me, authorizing or empowering any 
person or persons to represent me, or vote in my name 
and stead or act for me in any way whatsoever at any 
meeting or meetings of the stockholders of the 



Witness my signature and seal this 

day of 192. .. 

(L.S.) 

Witness: 



124 NATIONAL INVESTORS GUIDE 



Option 

Date 

In consideration of , the receipt 

whereof is hereby acknowledged, the undersigned here- 
by agrees to sell and deliver to , 

his assigns or nominees, shares 

of the common capital stock of . , , 

an corporation, at $ 

per share, at any time within days 

from date, upon days' prior written 

notice of intention to exercise this option. All divi- 
dends payable after payment for said stock shall go 
with the stock. 

In testimony whereof, the said grantor has here- 
under subscribed his name and affixed his seal, the day 
and year first above written. 

. • . ., (L-S.) 

Witness: 



Subscriptions Obtained by Fraud 

The representation to constitute fraud must in point 
of fact be false, and it must be a statement of fact as 
distinguished from an expression of opinion or judg- 
ment. The false statement of a material fact must, 
to be fraudulent, have been made with the intention 
of deceiving. 

There are five elements necessary to render a state- 
ment fraudulent in the eyes of the law. It must be ( 1 ) 
a false statement, (2) of a material fact, (3) made 
with a knowledge of its falsity or with a reckless dis- 
regard of its truth; (4) it must be acted upon by the 
party to whom it is made, (5) who must suffer loss 
thereby. 



NATIONAL INVESTORS GUIDE 125 

It is a well established rule of law that if a person 
is induced to enter into a contract by false representa- 
tions or fraudulent statements made by the other con- 
tracting party or his agent, the contract may be avoid- 
ed, at the option of the innocent party. This principle 
applies with full force to contracts of membership in a 
corporation; and consequently, if a subscription for 
shares has been obtained through fraudulent repre- 
sentations the subscriber may repudiate his subscrip- 
tion and withdraw as a member of the corporation. A 
false statement regarding the contents of the charter 
would not, however, entitle a subscriber deceived there- 
by to avoid payment of his subscription, because a 
man in subscribing to shares undertakes to become 
a member of a particular corporation, and as his con- 
tract of membership is contained in the company's 
charter (which is of public record) he is bound at his 
own peril to inform himself of its contents. Further 
more, such false statements as will give a subscriber 
the right to repudiate his subscription must not relate 
to a matter of public law, must not be an expression of 
opinion, but a positive statement of fact, which must 
have been made by an agent authorized to speak on be- 
half of the corporation; they must have constituted a 
material inducement to the subscription and the party 
deceived by such false statements must act promptly in 
annulling his subscription, otherwise his privilege is 
lost. I 



Right to Examine the Company's Books 

It is apparent that if every shareholder of a large 
corporation was given the right to examine its books at 
pleasure it would be impossible to keep them in a 
proper manner. Consequently the law in some states 
holds that the books of a corporation may only be ex- 
amined at a meeting duly convened by agents appoint- 
ed by a majority of the shareholders. The better 
authority is to the effect that "unless the charter pro- 
vides otherwise, a shareholder in a trading corporation 
has the right to inspect its books and papers, for a 
definite and proper purpose, at reasonable times." 



126 NATIONAL INVESTORS GUIDE 

Liability of Stockholders 

Whether one is an original subscriber of stock or 
becomes such after a corporation has been formed, he 
is liable to contribute to the corporation the full amount 
of the shares he subscribed. 

It sometimes occurs that the promoters of a cor- 
poration having difficulty in raising sufficient capital 
to properly conduct business, offer to sell stock at a 
percentage of its face value, say thirty-three and one- 
third per cent. That is, a purchaser would receive 
$30,000.00 worth of stock upon payment of $10,- 
000.00. Such a purchaser is entitled to receive divi- 
dends upon his stock the same as if he paid the full 
value. Consequently it would appear upon the books 
of the company that the full amount had been paid, 
and the treasury of the company would appear to be 
in better shape than it actually was. 

Assume, that under these circumstances a party, 
upon examination of the corporation's books, is in- 
duced to loan it a large sum of money. It subsequently 
develops that the purchaser upon the terms mentioned 
above has never paid in the full value of his stock. The 
principle of law governing such a case is as follows: 
Every subscriber to stock of a corporation guarantees 
the amount of the face value of the stock standing in 
his name shall be used in payment of the liabilities of 
the corporation. He cannot escape his liability to pay 
the full amount of his subscriptions into the treasury 
of the company for the benefit of its creditors by any 
agreement with the corporation. In other words, the 
contract would be valid as originally made, provided 
the rights of creditors did not intervene. 



